Q4 2023 PDF Solutions Inc Earnings Call
Participants
John Kibarian; Co-Founder, President, CEO & Director; PDF Solutions, Inc
Adnan Raza; Executive VP of Finance & CFO; PDF Solutions, Inc
Blair Abernethy; Analyst; Rosenblatt Securities Inc
William Jellison; Analyst; D.A. Davidson & Co
Auguste Richard; Analyst; Northland Capital Markets
Presentation
Operator
Good day, everyone, and welcome to the PDF Solutions Inc. conference call to discuss its financial results for the fourth quarter and year end 2023 conference call, ending Sunday, December 31st, 2023. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session to ask a question during the session, you will need to press star one one on your telephone. As a reminder, this conference is being recorded. If you have not yet received a copy of the corresponding press release, it has been posted to PDF's website, www.pdf.com. Some of the statements that will be made in the course of this conference are forward-looking statements, including statements regarding PDF's future financial results and performance growth rates and demand for IT solutions. Pdf's actual results could differ materially. You should refer to the section entitled Risk Factors on pages 17 through 13, an annual report on Form 10 K for the fiscal year end December 31st, 2022, and similar disclosures and subsequent SEC filings.
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 Art nonres, PDF's Chief Financial Officer. Mr. Kibarian, please go ahead.
John Kibarian
Thank you for joining us on today's call. If you have not already seen our earnings press release and management report for the fourth quarter and the full year. Please go to the investor section of our website where each has been posted today. I will start with the review of 2023 with a particular focus on Q4, I will provide our perspective of the semiconductor market and then conclude with our outlook on PDF Solutions' prospects for the year and beyond. R&m will then provide an overview of our financial results and his perspective on the business before we turn the call over for questions.
Looking back on 2023, the company made great strides and our goal is being the end-to-end analytics platform for the semiconductor and electronics industries. This progress was particularly visible at our users' conference in October first, tenants was fantastic, with over 300 people registered from over 100 companies, which represents two times the turnover of our last conference. We had presentations from many of our customers and partners, including Intel, Analog Devices, Renesas, SAP, Adventist and others.
Second, our developers and application engineers and product managers revealed our roadmaps and demonstrated our new products customers described how they use our products and platform to revolutionize their technology development, manufacturing operations and product quality talks included their use of our designer will inspection to accelerate, bringing up of new products and processes, data analytics, AI solution for product engineering, defined yield issues, foster our test cell automation to enable 25% reduction in operating overhead and our Sapiens manufacturing hub to enable manufacturing digital transformation by connecting to the enterprise. We also provided updated information for investors turn off from our investors and analysts was substantially above our previous meeting. Overall, we received positive feedback from our community of customers, partners, investors and analysts.
2023 was also a year of significant progress in our product development. Our ePRO DFI. team was able to ship two machines this year, one to an existing customer. And in the fourth quarter a machine for manufacturing evaluation by a new customer. The PO bottle shipped in 2023 has two times the throughput of the previous generation, and it was optimized to find yield issues at both the middle of line and the metallization layers. Our essentially on Sapiens product teams work together to deliver our Sapiens manufacturing hub and analytics applications to link SAP's ERP system. So the factory information, we signed a contract for the first customer for this solution in 2023.
Finally, we released our ML Ops products. Customers tell us that the complexity of test is increasing due in part to advanced packaging. They have a desire to apply AI ML to improve product quality yields and operations. Building AI models is one thing, putting them online and then operating properly, while producing millions of chips is another. The challenge is to get data from the entire supply chain available at the right machine. So the AI models can be applied in real-time to the chip manufacturing and test PDS ML Ops enables customers to solve this challenge and putting AI models on the production floor by orchestrating the movement of data, the management of models and the model, the monitoring of the models, execution and production flow. Customer interest in our ML Ops has been fantastic. We are on pilot deployments with customers this quarter, while interest in our ML Ops has been great. The fact is there not enough engineers in the industry that are both familiar with AI and semiconductor manufacturing teaming with Intel and Carnegie Mellon University. We pioneered a new a new Master's course this past fall. The students are able to work with real-world data to develop new AI models using extensive software feedback has been great, and we look forward to expand this COSTS offering in the future. All of our marketing product development and field applications effort resulted in positive growth in the business. For the year, we grew revenue 12% against a backdrop of the industry that contracted 10%. As I said earlier, Arnaud will comment on the financials in depth, while bookings in the first three quarters were muted Q4 bookings were strong and we again built backlog. Bookings in Q4 were driven by excess CEO as customers deployed our process control, manufacturing analytics and test solutions. The strong bookings helped our revenue performance despite weakness in gain share and run-time licenses due to equipment customers and wafer fabs shipping less product than we originally expected for the second half of the year. Finally, in the quarter, we booked our first contract as part of the DoD AMI comments program. The Southern California universities and defense contractors wanted to leverage extensively to connect advanced labs with contractors fabs to smooth the transfer of new technologies to products. We are proud to be included in this program and work is already underway.
In summary, with progress we made in 2023. Pds is driving the reinvigoration of the IC manufacturing and technology development by bringing AI and ML. So the factory floor.
Turning to our view of 2020 for many of our fabless foundry and equipment customers are reporting relatively weak first half of 2024. And in many cases, customers are reporting Q1 will be down. They generally expect now that the second half of the year will return to growth while some customers are experiencing near term weakness. The long-term trends driven by increased intelligence, increasingly intelligent semiconductor products that make a possible the electrification of the energy economy and the geographic diversification of manufacturing are only accelerating. Our outlook for the year reflects both the short-term weakness in the IC industry and the longer-term macro trends that can drive significant growth. Overall, we expect bookings for the year to be up significantly versus last year, and we expect to build backlog meaningfully our revenue model for the year suggests the first half of the year will be roughly flat with when compared to the last year and growth returning to 20% on a year-over-year basis in the second half of the year. Overall, we expect double digit growth for the year.
Similar to last, when we look to the progress we made in 2023 and consider the opportunities we see in front of us in 2024. So we truly appreciate the effort of our employees, contractors, customers and partners that have positioned the Company for the future.
Now I will turn the call over to Dan for more details and comments on our results. None?
Adnan Raza
Thank you, John, and good afternoon, everyone. We're pleased to review the financial results of the full year and the fourth quarter of 2023. As John said, we posted our earnings release and a management report in the Investor Relations section of our website. Our Form 10 K with final results will be filed with the SEC by the end of February after the annual audit is complete. Please note that all 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.
Like John, I'm also pleased that we ended the fourth quarter of 2023 by growing our backlog versus the third quarter of 23. Our backlog at the end of the year was $230 million. For the full year 2023, we generated record revenue of $165.8 million versus $148.5 million in 2022, a 12% year over year increase. Two items are worth highlighting here. First, our analytics revenue grew 17% for the full year 23 on a year-over-year basis.
Second, we delivered a 12% total company revenue growth rate for the full year against the backdrop of a 24% decline in IYR revenues and as John pointed out, an industry that contracted 10% for the fourth quarter of 23, our total revenue was $41.1 million, up slightly on a year-over-year basis with analytics revenue growing 9% and IYR revenue declining 55%. For the fourth quarter, our gross margin was 72% and we reported EPS of $0.15 per share.
Turning back to the full year 23 results, I will now provide detailed comments on a full-year basis. Our gross margin was 73%, and we reported EPS of $0.73. For the full year, Analytics revenue increased 17% to $152.1 million versus the prior year, despite the fact that some metrics, connectivity run-time licenses will generate revenue as customers ship their equipment were down double digit percentage due to decline in end market equipment shipments. We are making solid progress on our mission to become the leading analytic software provider for the global semiconductor supply chain. Analytics has solidified as the dominant component of our overall business and is now 92% of total revenues for the full year. Important contributions to analytics revenue came from Exensio product deals we signed during the year, particularly some large double-digit million dollar deals signed in the fourth quarter, adding to our recurring revenues. Analytics revenue also saw contributions from continued adoption of our ePRO DFI systems by key customers. We are pleased that a second leading edge customer now has our ePRO DFI machine at their facility for manufacturing evaluation.
With respect to Symmetrix products, we continue to see weakness in equipment shipments affecting the contribution to revenue, which declined on a year-over-year basis. For the full year, we stay engaged with our equipment software customers to watch for signs of growth in shipments. Just as we highlighted last year on our earnings call with the full year 2022 results. It is worth noting for this year 2023 as well that our full year analytics revenue for 2023 was more than the total Company revenue for the prior year 2022. This is yet another year in a row for this noteworthy achievement for the full year 2023 IYR revenue comprised 8% of total revenues at $13.8 million and was down 24% on a year-over-year basis, driven by completion of some fixed fee engagement projects and reduction in revenues from gainshare, primarily from reduced production volumes at key gainshare customers.
Gross margin for the full year 23 increased to 73%, up from 71% for 2022 shopping another year of expanding gross margins. Despite the fact that gainshare, which is 100% gross margin decrease, we were able to grow gross margins in part due to better optimize spending on cloud infrastructure as we improve the business scale.
Turning to operating expenses, we also control the growth of our expenses to expand the operating margins to 17% for the full year 23 compared to 15% for the full year 2022. During the year, we managed our resources to better distribute use between R&D and presales activities, while funding the growth of our sales team to engage in the opportunities we are seeing in our pipeline for the year 2023 reported EPS of $0.73 a share, a meaningful growth of more than 20% compared to the $0.60 per share we reported for the prior year 2022. During the year, we generated positive operating cash flow of $14.6 million, of which we spent $11.3 million on CapEx for data collection systems for our leading edge business, $1.8 million on the acquisition of long-term machinery analytics for our EV battery initiative at about $0.7 million on share buybacks. We are pleased with another year of positive operating cash flow generation consistent with our history.
Turning to the balance sheet, we ended the year 23 with cash and equivalents and short-term investments of $135.5 million compared to $139.2 million at the end of 2022. And we continue to carry no debt we are proud of the performance of 23 against the macro environment and remain committed to the long-term targets we set at our Analyst Day in October last year of 20% year over year. Total company revenue growth rate, 75% gross margin and 20% operating margin.
Now turning to our financial outlook for 2024, we look forward to another growth year. As John said and stated in our earnings release, our outlook for the year reflects both the short-term weakness in the semiconductor industry and the strength of our pipeline bolstered by the macro trends of distributed manufacturing, energy, electrification and AI, which can drive significant growth. As a result, we expect revenue for the first half of 2024 to be flat over the comparable period of the prior year and for revenue for the second half of the year to grow by 20% over the comparable period of the prior year.
With that, I'll turn the call over to the operator to commence the question and answer session. Operator?
Question and Answer Session
Operator
Thank you, Mr. Rosa. Ladies and gentlemen, if you have a question at this time, please press star one one on your telephone. If you're using a speakerphone, please lift the handset before asking a question. Please wait one moment for our first question Our first question comes from the line of Blair Abernethy from Rosenbluth Securities.
Blair Abernethy
Good afternoon, gentlemen. Good afternoon, Bob, Blair and I am John, my first question is just a around DFI I'm sorry, that's great. You've shipped to a second customer. I just wonder if you can give us just some color around that. And was your have you started to recognize any revenue from that at this point? And sort of what does the pipeline look like for DFI as you kind of look forward into 2024?
John Kibarian
Sure. So yes, we shipped in the fourth quarter. This is for, as I said, our prepared remarks, manufacturing evaluation. We did the technical evaluation of what the machine is capable of seeing by having the customer ship wafers to us here, quite a number of wafers came through our facility here in California that this is a customer in East Asia. So we had to ship the machine over there. And the purpose there is to demonstrate that it's able to really be used in a production facility that it maintains the uptimes, but it has the repeatability as you scan flavors and wafers wafers day after day. You know, in our user conference this past for what our early adopter customer was able to show what they were able to do using the machine at our user conference. So we have good confidence that we will be able to demonstrate success and then convert that into revenue upon achievement of the milestones that we have set out for this evaluation in terms of the outlook for this year, we do anticipate adding additional customer in this year as well as expanding within existing customers and this year, customer this year, we expect to be able to ship just a couple of machines, but we'll be able to we've already ordered CompuCom capital for cleared us quite a bit more. So we're able to start shipping as we get to the end of this year and early next year at a more accelerated rate than we're shipping. Let's say, this year, but we expect to end this year with it have a quite a few machines contributing to revenue. So you say that today this last year of two machines contributed revenue we expect to over two times that number by the end of this year.
Blair Abernethy
Great. And I'm just wonder of maybe you can help us with your with your guidance thoughts and rationale, I guess in your guidance to the I mean, I can understand with the wire business and equipment shipments still being pretty tepid for the first half. What gives you sort of the confidence that you can go from effectively flat first half two, a pretty substantial second half growth?
John Kibarian
Yes. So great questions there. The bookings activity that we have ongoing, some of which completed in Q4 as our non side, a couple of very large. But on contracts, we've signed a fourth quarter, which is why the bookings in Q4 were large and then this quarter and next quarter, we have quite a bit of activity going on. We expect to build on that bookings momentum in Q4 and the first half of this year. Will be substantially over the second half of last year from a bookings standpoint. And then given the ratable nature of the business as you get through the year, that just drives incremental growth. And so we book in Q1, it will drive very little revenue growth in revenue or revenue in Q1. That will drive incrementally more in Q2. And then a lot more again, the second half of the year and similar to the bookings we did in Q2.
Blair Abernethy
Got it. Got it.
John Kibarian
Look at the grounds for optimism, the more internal or like our specific business situation with customers, that is the macro environment. They are so activities that we see that we're in deep discussions with customers that we feel pretty confident about on the Asia where RevPAR and instances you are more like the overall weather outside of U.S.
Blair Abernethy
So I get it. So it's more in your control more what you have business as opposed to waiting for the market to come back to you on the equipment side on the Symmetrix side.
John Kibarian
Right, we're not forecasting we are forecasting equipment getting better as we get towards the second half of the year modestly.
We're not forecasting a ton of growth in gain share. We are really forecasting a ton of growth in analytics, primarily around the selling activities, some of which happened in Q4 and more of that happens to begin in the second half of this year than the first half of this year. Q1 and Q2 in particular.
Blair Abernethy
Great. And so one last question, if I can. Just it sounds like so it you've made progress on the partnership side with SAP. Would there be any other significant parties you highlight?
John Kibarian
I think what we did in my prepared remarks, I talked about the new product release on SAP. Of course, we've had a number of products that we've done in conjunction with Adventist that yet that are generating revenue and continue to generate momentum. Some of the pilots we have on ML Ops also interface with that with the have been test infrastructure in their edge box. So we do expect those two partners to be driving additional bookings as we go throughout this year.
When we look at our other partners beyond that we are in active work with them on additional customers. And we do expect that more of our partners will start driving bookings with us as we jointly go to market with a number of them pilots with customers.
Blair Abernethy
Okay. That's thanks very much.
Operator
Thank you. One moment for next question.
Our next question comes from the line of William Jellison from Davidson & Co.
William Jellison
Good afternoon and thanks for taking the question. I'll ask two and then get back in queue the first one, and I'm wondering if you can share and any more color on the analytics revenue per customer metric, Pam, and any updated metrics on that front or just overall observations? And then within that, the level of module uptake you see within your existing customer base as well?
Adnan Raza
Yes, absolutely. And look, every quarter, we post this metric as we did the last quarter as well, and we're calculating that number of finalizing it to post for the Analyst Day itself. But over the last few quarters, we've seen the trend of that number going up. And we would expect that this quarter that would be the case as well in terms of continued in terms of adoption with additional customers, it's nice to see that customers are using our products on a larger scale, as referenced by the comment that we made in the call about the two large customers with the in a large deal that we talked about, the double digit million dollar deal. So stay tuned for that for that metric as we post our IR deck in the next few days about the Investor Day about the matter about the details on some of those metrics.
William Jellison
Absolutely. Okay. And then the second question relates to your investment in sales and marketing. I remember getting the impression from from your Analyst Day last October, a lot of the a lot of the incremental gross profit that PDF is going to get as it approaches that 75% margin target was going to get reinvested into a more concerted effort in sales and marketing. And I was just wondering on the level of intensity, PDS is presently investing there to capture those opportunities and whether or not we should expect that to step up even further as it pursues or more of those opportunities?
Adnan Raza
Yes. Look, I mean, through this year and frankly early on in the year, we talked about increased spend that we would plan to do with the sales and marketing side in Canada, if you I know were reported as a combined number was in the SG&A bucket. But I'll tell you a G&A is not where we have put some of that growth. It's really between the S and M side. We have hired some new people, especially given some of the M&A and the dislocation in the market that we sought to grab some of the good salespeople and add them to our portfolio.
And back to the questions are asked, you compare you add the two together, you say okay, great. You're spend on asset at what are the early proof points. I think the tone of the call that you're hearing from us along those lines, you're catching us at a good time. This is the time of the year. We also prepare our annual operating plan and presented to the Board and our early views of that. We do a top-down view. And then as we presented to the Board, we end up looking at every deal with the timing for the year. And that's how we're able to give you this guidance that we are sharing there. So yes, we've increased the spend in S&M is starting to show early results and the strength of the pipeline and hopefully the two deals in Q4 that we are the chalk up some of that benefit already and hopefully more to come.
John Kibarian
I think just to I think you asked a little bit around, okay, what does that mean for this year?
I think when you look at a quarterly basis, we crossed it out every quarter. But as we get into this year, we will make modest incremental investments. But a lot of the reason why sales and marketing expenses this year will be higher than last year. So you have a full year's accounting of the increase that happened throughout 2023. So we don't expect that we're going to incrementalize incrementally increasing at a much more rapid rate. In fact, arguably it will be at a more muted rate. But because you have a full year's expense and you know, on an annualized basis, it will be a higher higher number than it was last year. But on a quarterly basis, not a not a lot higher than Q4, just modestly off of a Q4. I think that by then what you are kind of looking for.
William Jellison
Yes, Bose, very helpful.
Operator
Thank you, gentlemen.
Thank you. If you have a question at this time, please press star one one on your telephone. If you're using a speakerphone, please lift the handset before asking a question one moment for next question.
Our next question comes from the line of Gus Richard from Northland.
Auguste Richard
Yes, good afternoon, guys. Thanks for letting me ask some questions here on the two large deals that you signed in the quarter, were those on sort of enterprise-wide fab test assembly or were they more point products? And could you give any color on is it like Analog, industrial or leading edge? What kinds of customers?
John Kibarian
Sure. So I can answer that. Both of them upfront and cyber-related, both of them are process control related with advanced analytics capability in one case and more a base capability. And the other one, they're both enterprise-wide in that they go across all of their facilities will worldwide and both as a result, relatively large customers that are have been customers before and now are deploying it more broadly in one case with more advanced capabilities on top of the base capabilities and so yes, these are we've been talking throughout the year that there is a number of large contracts that we've been working on. These were two of them. There are others that we are continuing to work on. This is again kind of getting back towards questions around the investment in sales and marketing that some of the early foods. We expect substantial a step up again in this first half of the year as we close a number of other larger deals. And this first part of the year that are all kind of related to these investments building even largely what we did, not just those two or those were pretty substantial for us.
Auguste Richard
Okay. And then just from can you give us a sense of like the size of your pipeline, you closed a couple of deals. Are there five, 10? How many how many more of these enterprise-wide deals on a currently working on?
John Kibarian
Yes, I mean off the top of my head. I don't know that I can give you a really great answer, Gus. I mean, as always is the case for us on a dollar value basis, we live by the 80,20 rule. So, you know, there's maybe even 90,10 there are probably 10% of the deals that represent a sizable, you know, 80%-plus of the dollar value because these enterprise things tend to be quite large. There are some out there that we're working on right now that are, as I said, substantially bigger than those first two that are going to drive a meaningful piece of our own our bookings this year. And then there's a number that are similar size to those you know a handful of them. I don't know off the top of my head, but this could be a fair number collectively overall, as I said in my prepared remarks, we do have a lot of confidence about the bookings this year on page 8 and the level of activity with customers quite meaningful, given those three drivers that I spoke about, the electrification of the energy economy. That's really just driving high-voltage silicon on battery technologies. The young advanced process nodes really geared towards AI that includes advanced packaging. So a ton of activity. We are going out for the ML ops piece there. And then all the DFI and our leading edge capabilities, all around just advanced semiconductors driven by I don't know, the geographic diversification customers really wanted to get to these more enterprise-wide control schemes because of the nature of their manufacturing to in Q4 kind of somewhat representative of that. But we see a number of those. So overall, it's probably, you know, I know in the 10 range, but there's probably two or three that drive a sizable fraction of that. And those 10 probably are you now have more than 80% of the bookings for the year.
Auguste Richard
Got it. Okay.
That was very helpful. Thank you. And then and just flipping to DFI, it sounds like you've got some pretty decent visibility through this year in terms of what you're building over the last 90 days. Have you know, I know there's some long lead time items for on DFI, have you had to sort of go back to your vendors and order more material for potentially deliveries in 2025?
John Kibarian
That's a great point because, yes, if you look at our expected spend on capital, you'll see it on step up in 2024 versus 2023 and 2023 had a modest increase versus 2020 of my number memory is correct and that step up is because of ordering for things weeks, machines, we expect to ship in 2025 more than what we expect to ship in 2024 as it does impact went up a little bit. And yes, we've been going back to our vendors to trying to tighten up the availability and delivery times we would like to get and we feel like we're getting close to the point where we're really going to be looking at how we can pull those in for because of the customer interest. So yes, we are you'll see the spend of this year. It's anticipation of 2025. We're setting ourselves up to be able to ship significantly more in 2025 demand for shipping in 2024. And we are going back and even discussing with the vendors on if we needed to pull in even more for that, how would we be able to more than what we're already planning, how we would be able to affect that? That would probably not affect our capital spend in 2024 very much, but it could affect our capital spend in the first part of 2025 and then shipments that would impact second half of 2025 we think we have the first half of 2025, mostly.
Auguste Richard
Okay.
Got it. Got it.
But that's super helpful. And then you mentioned in your prepared remarks that you expected to add additional customers this year from any colors that no memory advanced logic? Is there any is it one or two? What any color there is helpful.
John Kibarian
Yes. So we've on we continue to see opportunities in advanced logic, and we do expect advanced logic incrementally to contribute this year above what it contributed last year. We've also, you know us, we've been in the industry for quite a while. And so yes, we as you know, PDF has worked on yield ramps all around the world on with virtually everybody. I was chatting with an executive at one of the companies that's just getting into what would be more advanced than us trailing edge, but now would have to navigate. But as you think about everything from 12 nanometer to 28. And they were starting to see interest in those areas where people said, hey, we have this that could really accelerate our bringing up of new products. And one of the guys joke with me, John, we worked on your reps with you at my past company and these notes, and this would really help that. And so we think that the opportunity is broader than just the leading edge. As you know, we were very focused on just what can you do on the leading edge in some way because it's a Talisman about, you know, where you're going with for the industry, but now we're going to double back and look at some of those other opportunities. And we're also starting to get some early looks in the memory space on where we're starting to have some early dialogue. So part of our goal this year is to make sure we've got enough capacity in our own lab to be able to do demos and even for customers like much like we did for that Asian fab and on 2023, that enabled us to ship at the end of the year. We'd like to do that this year for some additional customers in the trailing edge across a trailing edge and memory. While we continue dependent on penetrate demo on the leading edge logic.
Auguste Richard
Okay. And I promise my last question. When you talk to these not bleeding edge but more advanced geometry logic, guys, DFI would be helpful for them and because it would accelerate there learning over Mike, on the permits chemistry used to use or is it a cost savings because you wouldn't scrap as many wafers as you go through that normally price.
John Kibarian
Great question because it's for bringing up the noted controlling. And if you just look at PDF has had yield models based on product design layouts for ever, we typically would run a test vehicle to expect kind of the intrinsic failure rates of metal shorts and opens contacted you or, you know, opens in contact to the shorts. Those models would always show you that half of the yield loss you would see because it opens between layers, shorts and opens between layers. But you can't see them optically. So the customer would run a test vehicle are short flows to see the single layer shorts and opens in the between layers, shorts and opens.
But then if you want to know what does it really do on product? Will our test vehicle could give you on that because it's a test vehicle and the inspection tools can just tell you what's happening at layer that can't really tell you do you have a failure in 1 billion or 0.1 billion, 1 billion or 0.10 billion on the contacted via layer. And the probably the only thing that can really do that can measure tens of billions and tell you, okay, what's your real failure rate across all the layoffs of unreal products and not really about what the point the guy says. I got, John, when we went from your test vehicle to product, we got caught by some issues took us months to solve because there's no way to look at it. Depot gives you a way to look at that. And that's why the kind of as people see that this is real. You can measure 10 billion contacts and VMs, right? That's a change of the game, right? So even for 12 nanometer or 28 nanometer, that actually matters and quite a bit. And we've always known in our models, it's hot cereal.
Auguste Richard
So hard to see anyone not a perfect fit that was super helpful that that really clarifies it for me. Thank you.
John Kibarian
No problem.
Operator
Thank you. If you have a question at this time, please press star one one on your telephone. If you're using a speakerphone, please lift the handset before asking a question. If you have a question at this time, please press star one one on your telephone. If you are using a speakerphone, please lift the handset before asking a question 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.
