Good day, ladies and gentlemen, and welcome to the PDF Solutions, Inc. Conference Call to discuss its financial results for the First Fiscal Quarter ended Thursday, March 31, 2016. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session for which instructions will be given at that time. [Operator instructions] 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 the PDF's Web site 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 12 through 19 of PDF's Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and similar disclosures in subsequent SEC filings. The forward-looking statements and risks stated in this conference call are based on information available to PDF today. PDF assumes no obligation to update them. Now, I'd like to introduce John Kibarian, PDF's President and Chief Executive Officer; and Greg Walker, PDF's Chief Financial Officer. Mr. Kibarian, please go ahead.

Thank you and welcome everyone. Today I will start our discussion with a brief summary of our first quarter results then I will provide some perspective on the semiconductor industry and PDF Solutions' performance towards its strategic objectives. Next, I will turn the call over to Greg who will talk you through the financial results in detail. We will then take your questions. In Q1 we continued the strong bookings in revenue performance for our solutions business that we have seen in the prior quarters. In fact, Q1 was our largest booking quarter in the history of the company. We brought in and extended several existing agreements with five major semiconductor companies. Q1 Gainshare revenues of $6.5 million was a decrease of 34% when compared to a strong Q4 2015. As we have stated before, Gainshare revenue is directly related to wafer production volumes shipped by our large customers and as a result can be highly volatile. As we stated in last quarter's earnings call, we were very cautious about any recovery in 28 nanometer volumes. Clearly our caution proved to be prudent. We did, however, see a 79% growth in Gainshare related to 14 nanometer node compared to last quarter, which somewhat offset the decline in 28 nanometer. Additionally, we expect continued 14 nanometer improvements in Gainshare revenues in the second half of the year as additional capacity comes online. The net weakness in total Gainshare revenue was offset by strength in the solutions revenue which increased 27% over the prior quarter to $18.7 million. From an overall spending standpoint, we saw a continued step up in R&D expenses related to our design for inspection or DFI solution. The increase in spending reflects the accelerating activities around DFI as being or moving towards initial deployments and is consistent with…

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 nonrecurring items, stock-based compensation expenses and amortization of expenses required to acquire technology -- related to acquire technology and other intangible assets and their related tax effects as applicable. Additionally, the income tax provision has been adjusted in our non-GAAP net income to reflect cash tax expenses only. EBITDAR is equal to earnings before income tax adjusted to exclude nonrecurring items, depreciation, amortization and stock-based compensation. You can access the earnings press release that contains a reconciliation of EBITDAR and non-GAAP income to GAAP results in the Investors section of our Web site located at pdf.com. Now let's turn to a review of the financial results. Total GAAP revenues for the quarter were $25.1 million resulting in net GAAP income of $2.1 million and GAAP EPS of $0.07 per fully diluted share. Revenues on a non-GAAP basis totaled $25.2 million with non-GAAP net income of $5.4 million and $0.17 per fully diluted share. Cost of sales and operating expenses together were $21.8 million on a GAAP basis and $18.9 million on a non-GAAP basis. Moving onto revenue details. As stated earlier, total GAAP revenues for the quarter were $25.1 million. This was higher than the previous quarter by approximately $1 million. Total non-GAAP revenues of $25.2 million for the first quarter were approximately $700,000 higher than in Q4. Total non-GAAP revenues were comprised of Design-to-silicon-yield solutions or solutions revenue of $18.7 million and Gainshare performance incentive or Gainshare revenue of $6.5 million. Our top 10 customers represented 88% of total revenues in the current quarter.…

[Operator Instructions] Your first question comes from Jon Tanwanteng.

Nice job on the solutions business. Could you first comment just on the trajectory of the solutions revenue going forward, especially given the positive commentary on 10 and 7, China and DFI. Should we see sequential increases by quarter?

Hard to say quarter-to-quarter. As we have talked about, the number can be quite volatile quarter-to-quarter. But overall, we are expecting a fairly substantial step up in the year-over-year number. And if you recall, I think at the last quarter we said we expected it to be in the low double digits growth.

Okay. Got it. And then in the solutions business overall, what's expected mix of DFI versus your traditional yield business.

Well, for 2016, what we have said about DFI was we may see our first revenues out of DFI in 2016 but it would be immaterial.

Okay. Got it. And just where do we stand on the 20 nanometer utilization at your current customer. Do you expect that to turn out any later than you did previously or was this still the same outlook given the caution and weakness in the Smartphone markets that we are seeing?

Yes. It's about roughly the same as what we said before. We had a very good Q4. Q3, we said we thought it was going to be bad. Q4 than ended up popping up significantly over Q3 and we think it was somewhat a pull forward of volumes and then Q1 as a result suffered a little bit from that. So the caution over that we saw in Q3 we maintain.

Got you. And just going back to your comments on potential for increased spending. Is that -- was revenue inline with your outlook or is that revenue growth beyond what you have already stated or supplied in your outlook I guess.

Yes. I think if we continue to book business, new business at the rate we saw in Q1, than that would be expenses related to growing revenues faster than our current outlook.

Your next question comes from Tom Diffely.

So I guess first on the 20 nanometer business. Are you seeing, is most of the decline just from absolute less production or is it some of these customers moving to 14, just transferring their products to 14 nanometers.

This is John. I think in general the uptick on 14 nanometer volumes and even 16 across the world wouldn’t fully replace what's then the down number of wafer volumes on 28 nanometer. So I think it's a little bit of softness overall. It's just a [indiscernible].

And then the, I guess call it second tier foundries that are building up 28 nanometers that has yet to hit you as far as the rotation goes?

Yes. It's why we showed -- and part of the reason why we feel more comfortable about 2017 volumes on 28 nanometer is we expect recovery at the customers that are in Gainshare right now on 28 nanometer. As well as we see a fair amount of demand in Asia primarily, both at the designer level and the foundry level in those markets and we expect that to come online really as you get into and through 2017.

Okay. And then the 14 nanometer ramp right now. Is that still just one customer or have you moved to the second customer yet?

In Q1's production it was one customer. So this is why again we -- I think in my prepared comments we talked about increasing amount of capacity coming online as we expect another customer come online and see that will drive incrementally more volume.

Okay. Great. And then when you look at the DFI what type of model are you going to have with that business. Is it going to be a equipment sales with heavy service components or is it going to be more like a software with royalty model?

It's a good question, Tom, and we have deferred answering that for quite a while. Now that we are starting to have dialog with the customers about this, really we see two ways this goes forward. With some of our yield ramps we are going to include early use of the EPROBE system and design for inspection for a part of that ramp for incremental improved fix season wafer fees. And that will be some amount of capacity. That’s really kind of visiting existing customer but we see a lot of activity, companies that are not our customers today. And those customer situations we are really treating it like software as a service or a TVL. So it will be a ratable usage model where they pay for usage because the value is not just the machine but the software and the on-shipment [structures] [ph] that’s kind of an overall solution. So we have been having discussions with customers around us being basically a ratable business model with margins that are very typical for a software company. Gross margins that are very typical for a software company because so much of that value and cost is in the software and IP, not so much the piece of hardware. This is where it's very different than a conventional inspection business where your cost are so much in the hardware. For it's really that way.

Okay. So ultimately, will this be forward into your two like item revenue model or will it be separate line item?

It will be -- Greg, will find the answer better than me but my vote will be, it just falls into design for yield solutions until, unless we have to bring it out on something else in the future. But it's not all that different than the Exensio software from a ratable -- it looks a lot like Exensio.

Okay. Great. And then Greg, you mentioned that there is a little uptick in the COGS from shipping cost. I would have thought that the actual cost of the servers and the testers would have had a bigger cost than the actual shipping portion of it.

Remember the server and tester deployments, particular the tester, doesn’t flow through cost of goods sold, it flows through depreciation expense. And it's relatively small than those that are advertised over a large number of years. But the thing that’s hard to predict is where are those testers going to be deployed to. When they get deployed overseas than we pay pretty substantial shipping cost.

Okay. I understand. And then when you look at just the operating expenses going forward. If we assume that you don’t have additional growth from the design if you look in, they are just flat here. Do you need to invest more for the DFI rollout or you had a level now that’s supports it?

Now the DFI expenses will continue to ramp. I think we said at the year-end call that we would expect growth in that expense by about 30%, if I remember correctly. But I can double-check that for you.

Okay. So then additional growth in the design it's looking would be on top of that?

That’s correct. And that would primarily be something you would see in the cost of goods sold line. As the projects come on line and also some expenses in the sales and marketing line too.

Okay. And then finally the tax rate of 24%, it looks like that holds for the year and then would it change, edge up a little bit in the out year?

Yes. So I think we guided at the end of last year to 24% to 26% range for the year. So we will be in that range, bouncing up and down probably quarter-to-quarter depending on what the mix of Gainshare is in any given quarter, the geographic mix. Because the primary driving factor is really how much withholding tax on foreign royalties do we have.

Okay. And this ramping business in China affects that long-term?

Yes. Long-term as China comes on line, mainly in 2017 and becomes a larger portion of the overall Gainshare number that will have an impact on the cash tax ready.

And you have no further questions at this time.

All right.

Thank you very much, everyone.

Take care, bye.