What PDF Solutions (PDFS) Said on Its Q3 Earnings Call

Key Points

• Record revenue and growth outlook: PDF Solutions reported Q3 revenue of $68.3 million, up 20% year over year, and reaffirmed its target for 20% revenue growth in 2026. Strong demand, including an eight-figure eProbe contract and other large customer deals, supported results.
• Margins and earnings improved: Non-GAAP gross margin rose to 77%, operating margin to 28%, and EPS to $0.40. Management expects Q4 gross margin of 75%–77%, noting product mix may cause fluctuations.
• Backlog and expansion plans: Backlog fell to $247 million from $271 million in Q2, but management expects large deals to lift it above its prior $292 million peak across Q4 and Q1. The company is also expanding eProbe into DRAM and flash and aims to build more machines in 2027.

PDF Solutions NASDAQ: PDFS reported record third-quarter revenue of $68.3 million and reaffirmed its target for 20% revenue growth in 2026, citing strong demand from semiconductor equipment vendors and a pipeline of large customer contracts.

Revenue rose 20% from a year earlier and 11% from the second quarter. President and CEO John Kibarian said the company’s Cimetrix tool connectivity and control software had another record quarter as customers shipped more equipment and purchased more runtime licenses.

The company also signed an eight-figure contract with an existing customer for an eProbe machine and a characterization vehicle test chip optimized for e-beam measurements. Kibarian said PDF Solutions booked additional seven-figure contracts for characterization infrastructure and its Exensio analytics platform.

Margins Improve as Platform Revenue Grows

Platform revenue rose 22% year over year to $58.3 million, driven by leading-edge engagements, Chief Financial Officer Adnan Raza said. Volume-based revenue increased 10% from a year earlier, with growth in Cimetrix runtime licenses partly offset by the shift of a large secureWISE contract to subscription-based platform revenue.

On a non-GAAP basis, gross margin rose to 77% from 73% in the second quarter, while operating margin increased to 28% from 22%. Raza attributed the gross margin improvement to lower eProbe-related costs and controlled personnel spending.

Non-GAAP earnings per share were $0.40, up from $0.25 a year earlier and $0.27 in the prior quarter. For the first nine months of 2026, earnings per share were $0.99, compared with $0.64 in the same period of 2025.

Raza said product mix could cause margins to move over coming quarters. For the fourth quarter, he suggested a gross margin between 75% and the company’s long-term target of 77%. The company’s long-term operating margin target is 27%.

Large Deals Expected to Lift Backlog

PDF Solutions ended the third quarter with $247 million in backlog, down from $271 million at the end of the second quarter. Management maintained its expectation that year-end backlog will exceed the second-quarter level.

Kibarian said the company is pursuing several large contracts, although individual deals can slip between quarters or be split into separate components. He expects enough to close in the fourth quarter to grow backlog during the year, with some potentially moving into the first quarter of 2027.

Asked about the company’s prior backlog peak of $292 million in the third quarter of 2025, Kibarian said PDF Solutions expects large contracts closing across the fourth and first quarters to lift backlog above that level. He did not provide a specific 2027 revenue forecast.

Equipment Business and eProbe Expansion

Kibarian said the equipment business, which includes Cimetrix and secureWISE, represents about 20% of the company’s revenue and has been growing in the high teens. Cimetrix runtime licenses tend to track equipment shipments, while secureWISE demand is more closely tied to the installed base of tools, he said.

Management expects secureWISE to benefit in 2027 from expansions by existing customers, adoption by more fabrication facilities and opportunities in test and assembly. The product enables communications and remote access between fabs and equipment vendors.

For eProbe, Kibarian said machine utilization has generally been strong and that the company is expanding beyond leading-edge logic. It has started a DRAM pilot at a customer site and is beginning a flash technology evaluation at its own facility. PDF Solutions also sold into trailing-edge logic during the first half of the year.

Kibarian said the company is trying to build more eProbe machines in 2027 than in 2026, though it has not finalized a number. He also said PDF Solutions wants to expand its limited exposure to China, potentially placing a machine there late this year or early next year.

AI Analytics and Cash Spending

At its October customer event, PDF Solutions unveiled Exensio Aurora, an AI-native analytics architecture announced in September. Kibarian said early feedback has largely come from demonstrations and that it is too soon to assess how the product performs in customers’ real-world applications or determine the potential revenue uplift from upgrades.

The company generated $13.8 million in operating cash flow during the quarter and spent $15.1 million on capital expenditures, primarily for tool equipment builds. It ended the period with approximately $107 million in cash and cash equivalents.

Raza said fourth-quarter capital spending should be at or below the third-quarter level and that management continues to expect positive free cash flow for the full year.

About PDF Solutions (NASDAQ:PDFS)

PDF Solutions, Inc NASDAQ: PDFS provides software, analytics and engineering services for the semiconductor industry. Its solutions help chip manufacturers and their supply-chain partners collect, integrate and analyze data from design, wafer fabrication, assembly, packaging and testing operations.

The company's product portfolio includes the Exensio platform, which is designed to support semiconductor manufacturing analytics, yield improvement, quality management, test optimization and supply-chain visibility.

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