PDF Solutions Inc (PDFS) 2021 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to PDF Solutions' Second Quarter 2021 Conference Call. (Operator Instructions) I would now like to hand the call over to Joseph Diaz (sic) [Joe Diaz] of Lytham Partners. Please go ahead, sir.

Thank you, Donna, and thanks to all of you for joining us today. on this call. We appreciate your time and your ongoing interest in PDF Solutions. As the operator indicated, my name is Joe Diaz. I'm a Managing Partner at Lytham Partners. We are the Investor Relations consulting firm for PDF.

If you do not yet have a copy of today's press release, it's available on the company's website at www.pdf.com. Some of the statements made during the course of this conference call will be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding PDF's future financial results 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 the company's annual report on Form 10-K for the fiscal year ended December 31, 2020, and similar disclosures in subsequent SEC filings. The forward-looking statements and risks stated on this conference call are based on information available to PDF today. The company has no obligation to update them.

With that said, I'd like to introduce John Kibarian, PDF Solutions' President and Chief Executive Officer, will be followed by Adnan Raza, Executive Vice President and Chief Financial Officer.

At the conclusion of management's prepared remarks, we will open the call for your questions. Let me now turn the call over to John Kibarian, President and CEO of PDF Solutions. John?

Thank you for joining us on our call today. If you have not already seen our earnings press release, management report and 10-Q for the second quarter, please go to the Investors section of our website where each has been posted.

We appreciate your taking time to join us today. I will start with -- start the discussion by providing commentary on our Q2 highlights. From there, I'll provide our impressions of the semiconductor industry and conclude with our expectations for PDF's business in the second half of the year before handing it over to Adnan for a more detailed financial update.

Highlights for the second quarter show progress towards our long-term objective of being the go-to manufacturing data analytics platform for the semiconductor and electronics industry. Building on Q1, business activity in the second quarter was very strong. For the first half of the year, bookings are up 60% compared with the first half of 2020, and total backlog as of June 30, 2021, has more than doubled compared to June 30, 2020.

As we have said before, we believe that a successful manufacturing analytics platform requires the right data, data quality and analytics of the equipment edge. Increasingly, customers are requiring the platform to be on the cloud where they can benefit from both SaaS model and supply chain-wide use of the analytics platform, which fosters collaboration between them and their suppliers.

In the second quarter, we demonstrated our ability to bring the customers the right data with strong bookings for leading-edge solutions applied to customers' developing and ramping processes from 28-nanometer to 3. In particular, there were 2 contracts of note. The first is a multiyear multi-node Integrated Yield Ramp contract for an existing Chinese customer.

The second is a quick start agreement with the customer to begin deployment of Exensio CV infrastructure and a DFI system on a subscription basis. This already multimillion dollar agreement enabled us to quickly start the deployment of these systems while the larger multiyear subscription contract for the first -- for the first node is completed.

The industry's increased interest in having analytics equipment edge is reflected, in part, by another strong quarter for the Cimetrix connectivity products. This quarter included orders from some of the most complex front-end fab equipment as well as test and assembly tools.

Our business with equipment customer starts with licensing our software development kits, or SDKs, to enable integration of our software with their equipment. They then pay us for runtime licenses for each tool in which the software is included. For the first half of the year, we experienced record revenue from runtime licenses. We also had strong design wins on new equipment platforms that bodes well for future runtime licenses.

Our SaaS bookings continued to grow in the quarter as Exensio customers adopt our cloud. In the second quarter, one of the largest U.S.-based fabless companies signed a contract with us to move their on-premise deployment to the cloud, enabled by our big data solution. They found, like most companies who benchmark, that the performance and cost advantages of moving to Exensio cloud are quite meaningful. Given the growth of Exensio Cloud, we anticipate having multiple petabytes of data under management over the next few years.

In the second quarter, we recognized revenue from the first sales by Advantest of our first integrated product that leverages their know-how and test and Exensio's capabilities in adaptive test. This revenue is over and above the $10 million per year minimum commitment that Advantest and PDF agreed to when the partnership was initiated. The sale of this integrated product, in less than a year from our signing the partnership agreement, demonstrates the advantage of collaboration between the companies and importantly, provides Advantest with unique and differentiated capabilities in the marketplace.

Looking at the first half of the year, we are very pleased with the progress achieved to date. On a year-over-year basis, we grew analytics revenue 37% for the first half of the year and 29% for Q2.

I would now like to turn to what we're seeing in the industry. Overall, semiconductor and electronic companies continued elevated investments in process control and new node bring up, which bodes well for our business. We believe that we will see continued strong interest in our products in the second half of the year. As we discussed earlier this year, we do anticipate legacy gainshare contracts rolling off in the third quarter to result in gainshare in the second half of the year below the first half.

That said, due to the strong backlog and anticipated bookings for the remainder of the year, we believe Q3 revenue should exceed Q2 revenue and we anticipate this growth to be broad-based, led by continued strong bookings of our analytics solution for leading-edge customers and our cloud offering more broadly. We are pleased with the progress we made in the first half of the year and making PDF Solutions the manufacturing data analytics platform for the industry, which helps us build recurring revenue streams to provide greater visibility and predictability of our financial results.

Finally, I want to thank our employees for nimbly supporting our customers and continuing to innovate in the COVID-19 environment.

Now I'd like to turn the call over to Adnan for a review of the financials, after which we'll open the call up to your questions. Adnan?

Thank you, John. Good afternoon, everyone. Good to speak with you all again today, and I hope all of you and your families are keeping safe. We are pleased to review the financial results of the second quarter and to bring you up-to-date on the progress of the business.

Our Form 10-Q has also been filed with the SEC today. Please note that all of the financial results we discuss in today's call will be on a non-GAAP basis, and a reconciliation to GAAP financials is provided in the materials on our website.

Financial results for the second quarter of 2021 continued to be strong coming after a solid first quarter. Q2 total revenue was $27.4 million, up 28% from the comparable quarter last year. Analytics revenue was up 29% to $19.6 million in Q2 of 2021 versus $15.2 million in the second quarter of 2020 and represented 71% of total revenues this quarter.

On a dollar basis as well as a percentage basis, we expect analytics revenue to grow further in the coming quarters. We're making great progress towards our goal to be the largest manufacturing data analytics platform for the global semiconductor and electronics industry.

During the second quarter, revenue contribution from Integrated Yield Ramp was $7.8 million compared to $6.2 million in last year's second quarter, an increase of 26%. We saw strength in IYR revenue from fixed fee services as a result of a large booking from a Chinese customer, which John spoke about.

Overall, our business is gaining momentum. You may recall that full year 2020 bookings increased by 2.5x that of 2019. In the first half of 2021, total bookings increased by more than 60% from that comparable high-growth period last year. So bookings continue to be very strong, which sets the stage for future revenue growth. Given the strength in bookings and backlog, we believe analytics will more than offset any decline in IYR revenue in the coming quarters.

Our backlog is very strong and continues to grow. At the end of Q2 2021, our backlog was $138.6 million compared to $63.5 million in Q2 of 2020, an increase of 118%. While we do not expect this triple-digit percentage growth to continue going forward, we believe the momentum building in the backlog can continue in the coming quarters as our bookings continue to be strong.

During the quarter, we continued to make progress toward our non-GAAP gross margin goal of 70%. Favorable product mix got us to 65% gross margin in Q2 2021. The transition to software continues to increase gross margin, which is especially important given lower anticipated gainshare revenues. The growth in bookings and backlog provide us confidence that we can continue to progress towards our gross margin goal.

On the spending side, compared to Q2 of prior year, our cost of sales were up $1.8 million, primarily due to personnel-related costs from our Cimetrix acquisition and also due to investments in cloud, hardware and software infrastructure to deliver on customer contracts.

Within operating expenses, our R&D increased by $2.3 million compared to Q2 of prior year, primarily due to personnel and subcontractor-related costs from Cimetrix and PDF's side. Our SG&A increase of $1.6 million compared to Q2 of prior year was driven by the Cimetrix acquisition.

As John mentioned, with regards to DFI and CV systems, some of our customers are increasingly looking at Exensio, DFI and CV as a combined analytics solution for leading-edge technology nodes.

On the cash flows, we generated $8.1 million in cash flow from operations, and we expect to generate cash from operations for the year, consistent with our history. We ended the quarter with cash and cash equivalents of approximately $139 million compared to $145 million at December 2020.

During the first half of the year, we used cash for stock buybacks of approximately $4.5 million payments related to the Cimetrix acquisition and continued cloud infrastructure investments for future growth. We believe that the strength of our balance sheet positions us well to consider strategic acquisition opportunities as they become available.

Looking forward, given our backlog and anticipated strong bookings, we are gaining confidence with the expected results for the remainder of 2021 and now expect full year calendar year 2021 total revenues to grow between 20% to 25% on a year-over-year basis. We also expect full year 2021 analytics revenues to grow more than 30% on a year-over-year basis.

With that, I'll turn the call over to the operator to commence the Q&A session. Operator?

(Operator Instructions) And your first question comes from the line of John McPeake from Rosenblatt Securities.

Oh, I'm sorry. I had mute. It's not Zoom, and I still had mute. Okay. What I was saying when I was taking to you was nice job, guys. And I'm going to kick the call off with a somewhat dull question. But my calculations right here, it looks like DSOs, which have been kind of a thorn here, have come down nicely. Is that right?

Yes. Our AR balance is, yes, we did really well with cash collections this quarter compared to the last quarter. We had some work to do. And to be honest with you, we put in some new processes this quarter and the team did a fantastic job collecting cash from some of our customers this quarter.

Yes. I mean I'm not doing the exact days to the day of the quarter using 90 days. It looks like went from 129 to 99. Can it stay down here, do you think, Adnan?

I think yes. Look, I mean, we will continue to stay focused on this metric. Obviously, it's important for us to continue building cash. Depending on the customer and the region where they're located and sometimes it might skew the results one way or the other, but I can tell you this that over the last few quarters, we have increased focus on this and hope to continue this momentum.

Nice work on that. And I guess I'll ask kind of an open-ended question a little bit. There's been an increased focus on domestic production, particularly trying to get leading-edge production in the United States, not just a couple of hundred miles from nuclear missiles of an adversary -- potential adversary of ours. And is that affecting your bid business at all, guys? That's just kind of an open-ended question, but I'd love to hear what you're seeing.

Sure. Yes, I'll take that one, John. So I think specifically, there's -- I know the act that the U.S. government is passing, which is about $52 billion, we -- should that pass, and we anticipate it would, it would probably create additional opportunities for us. We do have customers that are locating factories in the United States and also customers that are expanding development across multiple nodes, not just the leading edge in the U.S. And that is impacting and partly why in my prepared remarks, I think that, that is happening almost irrespective of the government activity, but probably being enhanced by the government activity.

That is impacting, as we said in my prepared remarks, anticipated continued strong bookings on the leading edge because we do see customers, and as was said in Adnan's prepared remarks, we like the integration of the Characterization Vehicles, Exensio and DFI for bringing up these very complex 3D technologies.

And your next question comes from the line of Tom Diffely from D.A. Davidson.

John, I was hoping to get a little more color. I think you made a comment about how the customers are looking at DFI with more of an analytic solution bend to it than before. Maybe just a little more color on what you're seeing in DFI and what that opportunity looks like.

Yes. Sure, Tom. So about a year ago, our customers -- fabless customers came to us with a series of issues they were seeing in manufacturing in particular. And our team figured out ways of using the system to inspect the product by using a combination of our -- part of Exensio called Fire that analyzes product layouts. This is going to get a little technical. I probably should be careful how deep I go.

But identifying what looks like a DFI fill cell at a given point in the process, even if it was just part of the active circuit, and then analyze all of that. What you find is then there's tremendous amount of data you create. Literally, you're measuring tens of billions of these things on the wafer. And you're seeing lots of different dependencies in the layout, which they can go back and use to tune how they do design.

And it would turn it to be very helpful for characterizing some of the key issues on designs and bring up. And it kind of gets to the question that John asked, too. We are seeing, as customers are trying to bring up these complex 3D processes, this capability of combining the ability to analyze the product layout with the Fire capability, drive the machine to all of those spots, take that data and really have a huge machine learning problem of all the different layout styles that were in and then their failure rates because you're collecting tremendous statistics, you really can't see any other way. And it's a very unique capability and one that helps learn a lot of these process design interactions very efficiently.

Okay. So is the thought though that they would use your service going forward to do the big data analysis? Or would they want to keep that data internally and try to evaluate it themselves?

So no. The typical -- the machines always go -- will end up being on site. That machine, plus the cloud deployment of Exensio, would all be part of an overall subscription. And there's a big advantage of using Exensio in the cloud for this because you need to scale up and down the computing quite substantially to look at these dependencies. And that's why it's an overall bundle of basically hardware and software as the cloud deployment is also a hardware-software combination.

Okay. That's helpful. And then when you look at the mix of business in the second half with gainshare coming down, but the analytics is doing quite well, does that meaningfully impact the margin structure, do you think, over the next couple of quarters?

Yes, I think it's early to say. I think -- look, we've said in our prepared remarks is we feel confident about heading towards our 70%. How many quarters it takes, we're not being precise on. To your point, it will depend a little bit on the mix between those deals as well. Obviously, larger deals, we hope, will come with a little bit better margin. I think for the rest of the year, it's fair to say that it stays flat to maybe incrementally up at best.

Okay. And then you also mentioned that, obviously, the biggest adder to the cost over the last year have been personnel. Are there expected increases in personnel expenses over the next couple of quarters as well?

Yes. So it's a great question, by the way, Tom. Yes, so similar to our revenue thoughts as well, what we will be doing, yes, will be investing a little bit more. But I think our goal is going to be that we are spending at a slower rate than the revenue is growing. So on a combined spend basis, when you look at cost of sales plus OpEx together, we should be spending less than the revenue growth, which should hopefully trickle a little bit more to the bottom line.

Okay. And then finally, for the backlog, obviously, a nice impressive backlog. Can you give us some sense of what the duration or what the average length of the backlog is?

Yes. Majority of the contracts within the next 2 years, majority of the realization of that backlog and the rest of them were kind of up to the 5-year time frame. But majority over the next 2 years.

Okay. And then maybe just one more for you, John. When you look at your customer interactions recently, have they changed much over the last 2, 3 quarters? Or are you still in a position where it's a little harder to close some of the deals that traditionally have been done in person.

Yes. It's funny you should ask that question, Tom. I had a number of calls last week with customers I did 1 in-person visit. And the calls are now becoming very natural. One executive said to me, "Hey, John, we're used to doing business this way now. This is the way to go." And so I think that we're figuring out how to work in this way better and better.

Our confidence on the second half of the year is currently because I do see us making great progress working this way. And I anticipate that even larger complex contracts are starting to close. The one we did in China last quarter was pretty amazing to me because it's a very sizable contract with gainshare that goes out over 10 years past the deployment date. So this will carry us into some time into the middle of 2030s.

For a customer who we are already generating gainshare from, and we're seeing their gainshare trickle up on the nodes that they've already deployed, so it's a customer that we have some confidence in. And yet, we're able to close that contract remotely. And I think that was probably the most difficult, right, just from a language barriers and many other things. So we do feel good about our ability to close more complex contracts in the second half of this year remotely.

(Operator Instructions) Your next question comes from the line of Mr. Christian Schwab from Craig-Hallum Capital.

Good quarter, guys. Back to the Chinese large customer that you ramped and drove strength in IYR, and it sounds like you have a 10-year contract. Can you kind of give us an idea of, a, potentially how big that customer could get over that time frame? And secondly, how many other new potential Chinese manufacturers are you talking to about using your products?

Okay, sure. I mean I'll try to -- I think in reverse order, Christian. So there's been a number of customers in China. Generally, we don't take them on a gainshare basis because we have -- we deploy them on a -- basically on a system basis. The gainshare means we're going to provide teams with the technology and help them ramp yields, and that's a big invest on our part, too.

So we've been very selective on where we've taken those in places where we've seen good potential. There's customers we've been working with for a number of years in the early nodes. They did take longer to get to gainshare than we would have liked, but we did start seeing their gainshare numbers trickle up through -- towards the second half of last year and into this year. And that gave us some confidence that they would be a good partner on a gainshare basis.

This contract, the solutions part of it, the booking is in the 8-figure range. And there's a deployment period, which is on the order of a few years, and then there was a gainshare period, which is 10 years. So the total length of the contract is actually longer than 10 years. So it's quite a substantial activity.

In terms of how much the contract is eventually worth, Christian, that's still hard for us to estimate. We had very little history with our Chinese customers in terms of how much volume they get to. Historically, they've been very, very slow to ramp volumes, but we are seeing some improvements there, I think, as the -- as they started advancing their ability to manufacture more advanced semiconductor technologies than they have in the past.

Okay. And is there -- I guess my second question is, could you give us an update on any other potential meaningful new customers and where you sit? If there's anything you could share, either with other manufacturers and partnering with the likes of another Advantest or any type of update on anything that can happen with some large manufacturers out there who decided that they were going to get more efficient at manufacturing and kind of make the fab to foundry switch. Any update there would be great.

Yes. Of course, that's super -- it's like the old running joke of consulting for a ketchup manufacturer in the Greater Pittsburgh area. Everyone pretty much knows what you mean when you say that.

So we're always super careful about how we talk about customers, potential customers, Christian, and I know that you understand why. That said, we -- both with existing customers and customers that have historically not been big customers of PDF in the past, we have a tremendous level of activity. The bookings in the first quarter -- the first half of the year already reflect some of that -- those opportunities.

And as I said in my prepared remarks, we expect both companies that have been historically PDF customers as well as ones that have not to have increased bookings with those -- the broader community in the second half of the year.

(Operator Instructions) Your next question comes from the line of Andrew Wiener from Samjo Capital.

Went by pretty quickly, I just wanted to make sure I heard it correctly. Is the Chinese multi-node deal -- does that include a DFI tool?

There are other contracts we have that customers does have a DFI tool on site, and that's -- they have the right to use some of that in part of this contract as well.

Okay. And then you also referenced a quick start contract that, I think, you said was DFI and Exensio. So is that a contract that...

In Characterization Vehicles as well.

And character -- so that contract contemplates the shipping of a DFI tool to that customer.

That's correct.

And I assume that would be...

And if I could (inaudible) to actually get that machine shipped up there while we negotiate the remaining terms, as I said in my prepared remarks.

Okay. And so if I -- again, if I heard that correctly, the quick start contract had meaningful revenues associated with it, but you're in discussions about a much more significant contract that would be a broader deployment of your technology. Is that fair?

That's correct.

Okay. Okay. Secondarily, I just wanted to talk -- you didn't mention it on this call, but you talked in the past about your DEX networks. Maybe you could talk about how the deployment of that is going, how DEX networks fit in around some of the industry issues about sort of supply chain transparency and reliability and maybe some goals you set for this year as far as driving either commercial deployments or driving broader adoption that would ultimately lead to commercial revenues.

Sure. Yes. So just -- we always have 3-letter acronyms here at PDF. So let me -- DEX is Data Exchange Network. These are similar -- these are outposts that we put at the factories, primarily right now, OSAT test facilities, where they run a series of things: communications with our software that lies resident on the equipment in the facilities; a cache database, you can think of that as like a short-term database; and then an element to run business logic for evaluating rules, for quality screening on chips that they produced.

Disproportionately, this has been done for fabless customers as they want to be able to get to the ultimate product quality, running more and more advanced models and screening, but they don't actually run the testers. Those are run by third-party suppliers for them referred to as OSAT.

And we've got under 10 of those out of the OSATs now, a growing number, and we have -- we expect to grow that substantially as we get to the second half of this year as we have more and more fabless customers who like the ability to see their production in real time, be able to establish more complex models and rules. Some of the edge compute is involved with that.

And this is also very much involved with our activity with Advantest who have an edge compute box that they are shipping on the equipment and now communicating between that edge compute element. And the cloud is becoming important as that kind of application is being accepted in the test community.

So that's -- and our goal for this year, I think, is to over double our deployments that we have already. As I said, it's under 10 now, and we'd like to see that about double.

Okay. And is -- and are you generating meaningful revenue from that today? Or do you need to get to a sort of scale? And what sort of transitions this to be a commercial driver of extended sales?

That's a great question, Andrew. Yes. So -- and as Adnan has communicated in many of the prepared remarks over the past quarters, a lot of our rollout has been deploying these DEX nodes. It's a relatively meaningful fixed cost to deploy the nodes out there. And they are owned and operated by PDF, and they are multi-tenant in the way that they shift data around for multiple fabless customers.

So yes, as you get more and more to scale, i.e., more customers, that there is some incremental capacity build-out we have to do at each OSAT if they were to grow quite substantially. But it's kind of a Y equals an X plus B, and the B it's kind of the fixed cost of deploying that system there. And that's a big piece of the cost. So yes, as we get to scale, that becomes a more and more important part of our overall Exensio cloud offering. It is generating revenue for us today, and we anticipate it generating more in the coming years.

And your next question comes from the line of Mr. Gary Schnierow from RiverPark.

I wanted to follow up on the DFI. And it looks like your CV and DFI revenue was down, as you said, like -- I think it was $4.6 million year-over-year. Can you put that in context of how big that is today? And it also sounds like the DFI and eProbes is -- business is moving positively. So kind of explain those 2 issues and give a little bit more color on where you are on the DFI equipment that you were talking about a minute ago.

Sure, Gary. Yes. So I'll probably handle that. So we've -- these are very large lumpy contracts that have in the past been relatively short duration. This quick start is, in part, to deploy those systems in the second half of this year. The value of the quick start from a booking standpoint was substantially larger than the revenue rec in the quarter. And as a result, you can see that the revenue in the first half of the year was lower than the bookings would give you belief.

When we look at our model for the year, we anticipate DFI and Characterization revenues to be up substantially in the second half of the year versus the first half of the year. And overall, if we look out over a kind of a 4-quarter rolling time period, we expect that to be a meaningful part of the analytics revenue. As we described in Adnan's prepared remarks, this is really a bundle of Exensio Characterization Vehicles infrastructure, which includes some test capable -- hardware test capabilities as well as the DFI infrastructure, which is also a combination of software and IP and hardware capability.

So I think when you look back out, let's say, this time next year, you're going to see quite a substantial growth in that piece of the revenue stream we anticipate over the first half of the year. And this is a little bit just timing on contract bookings on what's a very nascent business at this point.

Okay. Great. And on the IYR, it sounds like you had a bump to that in the quarter from a fixed fee business that was weighed down by a continued decline in gainshare. At the same time, you expect the IYR line to be lower in the second half of the year than the first half. So is that just a -- is the way to think of that, that the fixed fee business is pretty consistent at this point and the gainshare continues to drop off?

Yes. Roughly, that's a reasonable way to think about it. It's the building up of this -- some unique opportunities we see in China, where we think there's real opportunities there. While some legacy older contracts that have been around for many, many years are starting to come to their end of life.

Got it. Okay. Makes sense. And so if I look at IYR that way and offset it by continued growth in analytics to get to your annual guidance, it seems -- if I'm doing the math right, it seems that analytics should be comfortably greater than 30% growth. Am I doing that right?

You must have been a high math SAT scorer. Okay. Yes.

Okay. And so -- and whatever the growth rate is for analytics this year, given the recurring nature and the fact that bookings and billings are so much higher than revenue growth, I assume it's fair to say that analytics growth next year should be, if not accelerating from this year, at least relatively consistent with this year.

Yes. So I think when you did that first set of math, you asked that question, too. And I think from our perspective right now, we've kind of got our head down on executing this year. As we get through the second half of the year, we're going to refine our models a little bit more and understand how we're going to go in and forecast. Because we've gotten asked this question a number of times, how are we going to go and forecast 2022. And then we'll come back with what we feel the long-term growth numbers look like for analytics and overall business.

We've been very happy with the growth this year. We obviously like to always make it better, and we're still tuning to try to make it better. So as we get through this year, we'll come back to you with some more thoughts around that for next year.

(Operator Instructions) You have a follow-up question, comes from the line of Mr. John McPeake from Rosenblatt Securities.

Sorry, I'm playing the mute thing back and forth again. Yes, a lot of these calls are dominated by component constraints. We would have had this revenue number. We could have this revenue number, but we weren't able to get components. You guys only have a relatively small percentage of your revenues coming from that. But I just want to get on the record that in the customer base that's taking delivery of, in some cases, equipment that may be running Cimetrix or connecting into the infrastructure that connects into Exensio, you're not seeing that as any kind of a risk. You are pretty much divorced from that, particularly in the analytics part of your business, right?

Yes. On the analytics, even on the DFI side, from -- most part, we are divorced from all of that. On Cimetrix, of course, every time a equipment company ships equipment, then that generates a runtime license. And if those companies were to be short of components so they could not ship, then that would impact -- could impact Cimetrix.

We have not seen that so far in our runtime license revenue. We do watch it. And I think, greatly, I've had a number of dialogues with our partners that are in the test equipment business and in the semiconductor capital equipment business. They sell equipment to chip companies who also provide them critical pieces of chips. And so I think everybody -- and I was meeting with a SVP of Operations at one of the larger chip manufacturers and a customer of ours, who said, "Yes, we know very fully well that we need to ship chips to our test equipment providers. Otherwise, we can't get the equipment we need to test our chips."

So I think there is an understanding within the industry so far to make sure that we don't eat the seed corn. And that has not -- and so we haven't seen that impact on the Cimetrix business yet. That will be the one place we may see it on runtime licenses. Frankly, it's been up very, very substantially year-over-year, and we don't expect it to impact us in the second half of the year.

Thank you. And no questions on queue. I would like to turn the call over to Mr. John Kibarian for closing remarks. Sir?

Thank you for participating in our Q2 call. We look forward to talking with you again soon. Have -- stay safe, and have a great day. Goodbye.

This concludes today's conference call. You may now disconnect.