Good day, ladies and gentlemen, and welcome to the PDF Solutions Inc. Conference Call to discuss its financial results for the fourth quarter and full year ended December 31, 2012. [Operator Instructions] As a reminder, this conference is being recorded. If you have not yet received a copy of the corresponding press releases, they have 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 10 through 16 of PDF's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and similar disclosures in subsequent SEC filings. The forward-looking statements and risks dated 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 Greg Walker, PDF's Chief Financial Officer. Mr. Kibarian, please go ahead.

Thank you, and welcome, everyone. PDF Solutions started off 2013 with another positive step towards our goal of being pervasively applied to leading-edge logic manufacturing and generating gain share from our client's successful yield execution. In the first quarter of 2013, we achieved revenue of $20.4 million, non-GAAP EBITDAR profit of $0.26 per share and GAAP profit of $0.15 per share. In a moment, Greg will go into more details of our first quarter financial results. On the new business side, we have the following engagements to report, all of these existing clients: a 20-nanometer leading-edge logic yield ramp with a foundry client; a 16-nanometer DFM engagement with a fabless client; an extension to a YieldAware FDC pilot based on initial positive results; and an expansion of a 28-nanometer DFM engagement with another fabless client to include an additional IC product. These engagements continue the trend of both fabless and foundry customers leveraging PDF Solutions' characterization vehicle technology and services across the IP process life cycle to improve the yield and manufacturability of their designs and processes. With this most recent business activity, PDF Solutions has now developed CV test chips on 4 different FinFET process technologies across 4 different manufacturers. As the results and feedback from this characterization vehicle infrastructure are generated, and multiple fabs around the world, we expect to have collected more data on FinFET technologies than about any other company in the world by year end. This will significantly increase our value to our fabless DFM clients, as well as our foundry clients as we provide superior design optimizations and device characterizations to enable faster time-to-market. We'll refer to these optimizations as virtual IDM enablement. Our new 20-nanometer ramp engagement that I mentioned earlier is another sign of yield brands at 20-nanometer are in full swing…

Thanks, John. As a reminder, in addition to using GAAP results when evaluating PDF's business, we believe it is also useful to consider our results using other non-GAAP measures. For internal purposes, the company focuses on non-GAAP net income and EBITDAR. Non-GAAP net income excludes stock-based compensation expenses, amortization of expenses related to acquired technology and other intangible assets, restructuring charges and their related tax effects as applicable. Additionally, income tax provision has been adjusted in our non-GAAP net income to reflect cash tax liabilities only. EBITDAR is equal to earnings before income tax, adjusted to exclude depreciation, amortization, restructuring and stock-based compensation. You can access the earnings press release that contains the reconciliation of EBITDAR and non-GAAP net income to GAAP results in the investor section of our website located at pdf.com. Now, let's turn to our review of the financial results. As John commented, during the quarter, we added a 20-nanometer yield ramp engagement, a 16-nanometer DFM engagement, an extension to an existing YieldAware FDC contract, and an expansion to a 28-nanometer DFM engagement. Total revenues for the quarter were $24.1 million with a GAAP net income of $4.7 million. This resulted in an EPS of $0.15 per share -- per fully diluted share, net income on a non-GAAP basis totaled $6.7 million or $0.22 per fully diluted share. Cash increased by $1.5 million during the quarter. Cost of sales and operating expenses were $17.8 million on a GAAP basis and $16.5 million on a non-GAAP basis, which is an increase in non-GAAP spending of $438,000 over Q4. Overall, we are pleased with the continuing strength in revenues, earnings and cash for the quarter. Moving on to revenue details. Total revenues at $24.1 million for the first quarter were up $295,000 as compared to $23.8 million in the…

[Operator Instructions] First question comes from Tom Diffely. Thomas Diffely - D.A. Davidson & Co., Research Division: First question I guess, Greg, on the taxes. So look like the cash tax has basically doubled for where we're at last year and you said the move from Europe to Asia with customers, so what kind of trend do you see going forward? Are we kind of the normal tax rate now that you foresee going forward? Or is this just going to bounce back and forth?

I think on the cash tax rate, from what we can project, based on the mix shift we see in revenue by country, because a lot of the cash tax is driven by withholding taxes, we think we will be at approximately 17% to 18% for the year. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And is that driven by where the fab is or just where the customer's home base is?

It's where the customer's home base or where the contract says we can invoice to. So for certain customers, one in particular, the fabs are spread out among multiple sites, but the -- all of the invoicing goes to the home country, which does have a fairly high withholding tax rate. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay, okay, good. And then, John, it sounds like you were talking about the increase in the royalties coming from 32 nanometers, what's the percentage of 28 in the book at this point? And is 28 still tracking to be ultimately your largest node for royalties?

We expect 28 to be the largest node for royalties. The percentage, that is, today is quite small. It's basically 32, that's in a higher volume right now. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay, is there any way to project when you think 28 might start to layer in?

We expect it to layer as we go out throughout this year. I think that's why, in general, we said our comments here we expect volumes on the leading edge to continue to grow throughout the year. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And then 20-nanometer activity that you're doing today, that's royalties a year or 2 down the road?

Yes. Yes, in our comments we really do think that when you look at the 28 -- no, the 20-nanometer -- the 28-nanometer nodes because some factories brought up 32 first then brought up 28. There was kind of a time lag between when -- so the leader brought up 28 and when the others are bringing up 28, because they brought up pretty substantial lines of 32. When you look at the 20-node, we just don't think that's going to be there. When you look at the timing across the difference of 5's, I mean, they're all going to be pretty much in lockstep. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay.

Within a couple of quarters of each other. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay, and if you look at the royalties over the last year or 2 there are periods of time when certain fabs came offline to move to the next node. Has -- is the negative impact of those largely over at this point? And we're now just waiting to see the ramps of the newer nodes?

We put on the comment on -- hey, there could be quarter-over-quarter variability exactly for that reason. We never really fully know how they plan their capacity, right? And there can always be hiccups, so we never want to say we're over that. We do feel pretty good about the remainder of this year though. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And then it look like the design-to-silicon line item dropped a little bit more than just what it went up in the fourth quarter, so now you're below where you were in the third quarter. Is there a seasonality in that or is it strictly just projects coming on and going off and just the timing?

Yes, this is Greg. I think when you look at the detail which we spend a lot of time analyzing, it's more just a timing of when projects are coming on versus when they're dropping off. And when they're dropping off, they're on probably their highest percentage of completion revenue recognition. And as they start up, they're at their lowest. So you do, as these things move, you do tend to get some bumpy gaps. But when we look at the overall engagements, we see we're right on track. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And the 4 new projects you talked about this time, it seems that it's a little bit less than -- from a number point of view anyway, than what you had in the last few quarters. Does that keep us now at these lower levels for a while?

No, we don't believe so. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And then there's also been kind of talk in the industry about how 20-nanometer is -- I guess, there's questions whether or not these foundries are going to move to the 3D transistor at 20 or below 20. And so, some companies are actually saying that they're seeing a hesitancy or a pause in the activity level until the foundries figure out exactly what type of transistor they want to make and when. But it sounds like from what you're saying though, you're seeing some pretty robust activity at 20 nanometers. I was just wondering if there's anything more you can add to that?

Sure, yes. But for point of clarification, the 20-nanometer is basically the planar nodes for most companies in the world and what people refer to as either 16- or 14-nanometer is really the 20-nanometer technology from a dimensionality standpoint, with the transistor replaced with a FinFET transistor or what sometimes isreferred to as a 3-dimensional transistor. So ground rules why they seem like they're roughly the same, when you really peel the onion and look at the details and the rules, actually you know the other Co-Founder, Kimon, refers to the FinFET node is the first negative morse-law [ph] node because the actual size of the standard cell elements at the 16, 14 nodes may end up being slightly bigger than the 20-nanometer node, just due to the extra manufacturability that the foundries are putting into the node to account for the 3-dimensional structures. So as designers, I think last year, when everyone was very excited about the FinFET technology, there were -- I always joke with the software developers, you compare software in the field and all of its warts with a bunch of PowerPoint, and how beautiful your software is going to be in the future, which will also have warts. So last year, everyone wanted, "Oh, look the 20-nanometer planar node's not great, the FinFET node's going to be so wonderful. Everyone is going to use FinFET node, now no one's going to use the planar node." Our perspective on this is that when you really dig into the details on the design rules and try to create a library set on the FinFET technologies, they have their -- they have a lot of issues when it comes to getting to great area scaling, even though they do have wonderful performance characteristics or reasonable performance characteristics. And the performance characteristics, as wonderful as they are, are not that much better than the planar, and they are better. So when you net it all out, both nodes have advantages. And when we've spoken with VPs of technology and heads of divisions of fabless and fab-like companies, they really are picking different products for each of these. They're treating these as 1 node and they're putting different products in different flavors depending on the particular requirements of the products they're building. And that's very similar to what happened at 28, 32 where some people went to 32 for the high K, some waited and went 28, with the poly-silicon to get the cost savings. And others waited to get 28 with the cost savings of the area shrink, as well as the high Ks, the 28 high Ks. And that's kind of bifurcation of the nodes, we -- something we think is basically here to stay. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. So those are the 60-nanometer DFM activity you have is for the FinFET type activity?

Yes, whenever we say 16 or 14 is by and large with almost all but 1 or 2 exceptions FinFETs. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay, and Greg, maybe just one more thing on the taxes. So how is Europe at a lower tax rate than Asia?

Withholding tax. So if you look at our cash tax liability, the bulk of it is withholding tax-related and what we see is the Asian countries, particularly one -- a couple of, actually, have fairly substantial withholding tax rates and we don't have a tax treaty with -- directly with them, whereas in most of the European driven revenue streams, we don't have significant withholding tax. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. If you...

So any time we move revenue between Europe and Asia, our cash tax liability is going to go up.

Your next question is from the line of Andrew Wiener.

I was wondering if you could elaborate a little bit on the YieldAware FDC solution opportunity, in particular, how we are going as far as commercializing with other customers, and in particular with our existing sort of logic foundry customers versus like the -- I believe the original customer within an image sensor application?

Yes. Okay, yes. So just -- I know we have a lot of jargon in our business, so YieldAware FDC really what that technology is, or systems, are about is large software systems that use the models often built by running characterization vehicles to use the data that's coming off the equipment that's manufacturing the wafer, so data that's coming off the etchers of the lithography systems, to identify suspect wafers. And the way factories are controlled today, by and large, they use metrology and inspection with what's typically referred to as a static inspection plan. In other words they look at 2 wafers per lot, 1 out of every 4 lots manufactured. Our belief had been that you should somehow use the information from the equipment that's processing the wafer to identify a wafer that's a suspect wafer. And then your control dollars on the wafers that are more likely to be questionably produced. That seemed like a really simple idea, it's really hard to put in practice that we've spent the last 7 years or so, building systems, acquiring companies at one time and making capability that we felt was robust. Yes, you're right, the first data customer was an image sensor customer and we continue to build business with them. We then went back -- and the system could be very useful to diagnose variability just from CV data and product data, and started doing pilots with our logic customers over the last year and change or so. And now some of them are converting some pilots into basically pay for extended pilots, and we expect in this year deployments. The reason why that's important to us is it extends the value of the life of our technology in the factory, increasing the revenue that we can generate from that factory, as well as the length of time that we can increase revenue out of that factory. So for us, it's a revenue creation and extension. And for the customer, it's obviously improved variability in the production line, reduced variability, reduced excursions, and improve use of their metrology and inspection capital.

So the extension that was referred to earlier in the prepared remarks, was that with a logic customer?

That was with a logic customer.

Okay. And so if I think about it from a timeline, which you talked about sort of matching the long-term business model characteristics of the gainshare business is that you'd hope to secure a number of engagements this year with our traditional logic foundries or manufacturers with the idea of that starting in '14, could have a material revenue impact?

We expect some revenue impact this year. But that kind of a variable production impact would be in '14 and beyond. But we feel more comfortable about that now, as we're starting to see customers say yes, we understand why this is really valuable and we understand how it fits to your usual business model. So we're starting to get the kinds of nods that we had been hoping to get for quite a while.

Great. Greg, on the gross margin side, the cost of revenue and I know you sort of mentioned a bunch of gives and takes on the call in absolute dollars was up sequentially or the cost of revenue I should say, was up sequentially from Q4 despite the dip. And as or should design-to-silicon ramp through the year, should we expect the cost of revenue to remain relatively constant with this quarter, net of those system takes?

No, the design-to-silicon ramp would generate some increases in cost of sales due to the, number one, the people employed in supporting those ramps. And then also, as more and more of our testers get deployed, as you're aware, we don't sell those testers, but we do deploy them to facilitate our use and we allow collaborative use with the customer while we're working. And we amortize those costs over a number of years, but as you start to deploy large numbers of them, you do see some cost increases. So while we don't think we'll see a tremendous amount of margin variability, well, on average, there will be some increase in cost of sales.

Okay.

Exactly.

[Operator Instructions] At this time, there are no more questions. Ladies and gentlemen, this concludes the program, thank you.

Thank you, take care.