Good day, ladies and gentlemen, and welcome to the PDF Solutions Inc., Conference Call to discuss its financial results for the Fourth and Full-Year ended Wednesday, December 31, 2014. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session for which instructions will be given at the 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 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, 2013 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 would 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 overview of the fourth quarter and full-year of 2014 for PDF, followed by a review of some of the major activities in the overall semiconductor logic market. Greg will then walk you through the financial results in detail and give some comments on our 2015 outlook. We will take your questions after that. The fourth quarter was a strong quarter for PDF, closing out what I would call the mixed year overall. While the Company’s achieved successes in many key areas, our overall financial results were adversely affected by our failure to close during the year two key contracts with one of our major customers. As you’re probably aware this issue was successfully resolved during early Q1 of this year. Greg will provide some detail on the financial aspects of these contracts. One of these contracts was for an early research and development and the second for Yield Ramp. As we stated in our press release on January 7, the year end contract includes gainshare and a rate inline with the value of the technology and services the company delivered. As a result, we see this as a success for the customer and PDF. We maintain ongoing engagements with that customer and work with them in three-way situations with our mutual fabless customers. Turning to a summary of the business for 2014. During the year, we brought in the adoption of our solutions for yield enhancement by spending our engagements with many of our current customers, while also signing engagements with new customers. Additionally, we saw significant interest in demand for our design for manufacturability solutions such as our Direct Scan Characterization Vehicle test chips, our XScribe Characterization Vehicle test chips and our DFM templates. As…

Thanks, John. As a reminder, in addition to using GAAP results when evaluating PDF 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 related to acquired 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 and amortization and stock-based compensation. You can access the earnings the press release that contains a reconciliation of EBITDAR and non-GAAP net income to GAAP results in the investors section of our website located at PDF.com. Now let's turn to a review of the financial results. Total revenues for the quarter were $26.1 million with a GAAP net income of $5.8 million. This resulted in GAAP EPS of $0.18 per fully diluted share. Net income on a non-GAAP basis totaled $9.1 million or $0.29 per fully diluted share. Cost of sales and operating expenses together were $18.3 million on a GAAP basis and $16 million on a non-GAAP basis, which is an increase in non-GAAP spending of approximately $671,000 over Q3. For the year, total revenues were $100.2 million and non-GAAP net income was $33.8 million. Moving on to revenue in more details, total revenues of $26.1 million for the fourth quarter were $3.7 million higher than in the prior quarter. Total revenues were comprised of design-to-silicon-yield solutions or solutions revenues of $13.9 million and gainshare performance incentive or gainshare revenue of $12.2 million. Our top-ten customers represented 94% of total revenues in the current quarter. Three…

Thank you Mr. Walker [Operator Instructions] our first question comes from the line of Jon Tanwanteng from CJS Securities. Your line is open.

Good afternoon. This is Jason Ursaner calling in Jon Tanwanteng.

Hi Jason, how are you?

Good. It seems like there has been a lot of movement recently in terms of some of the business wins at the leading edge among some of the key foundries and you mentioned some of these uncertainties surrounding the 14-nanometer node transition. Just wondering at a high level – how you see this dynamic of shifting business among the foundries affecting your company.

Yes hi, this is John. Yes I think obviously we collect – gainshare from some of the foundry companies and not all of them. so depending on how volume ends up, we participate in that volume that ends up in our partners and we don’t when it doesn’t end up at one of our partners. So it seems that the companies that we work with have gainshare on the FinFET node in comparison to the 20-nanometer node, at least they claim not. And if that’s true then that would be very positive for us, as we said in my prepared remarks until you see the volumes actually materialize folks can make big claims. So we need to take away and see on this.

Okay, and maybe just following up on that. You had mentioned that 20 to 28-nanometer node is sort of the dominant contributor in 2015, but to the extent your partners are winning share at 14-nanometer and are starting to reach functionally yields where we could see a ramp. How would you put the gainshare potential for maybe 2015, but more importantly fiscal year 2016 and beyond into context.

Yes, that’s a good question. So our model high is always been the FinFET volume is a 16 story, even if you go back two or three quarters ago we’ve been saying this for quite a while. It’s the kind of when we put our perspective out there in this call it’s no different than it’s been over the last few quarters which is we believe it is a 16 story. We believe the volume on that node will be substantial and that would be a very good thing for us. If that’s true, as we said in these prepared remarks 28-nanometer remains an important node and well even in 2016 continue to be an important node for the industry overall and for our gainshare and well actually four year right, so it’s an important node for us even on the going forward basis, right. But the 14, 16 node we expect to start contributing gainshare potentially in 2015 and certainly much more materially in 2016 being substantial contributor there.

Okay, and in the design solution segment I think I heard you say $6 million of catch up revenue in Q1, but maybe excluding the catch up payments, just how should investors be thinking about expectations for revenue growth in the design solution section going forward?

Yes, this is Greg, kind of consistent what we’ve looked at in prior years excluding this one time catch up in Q1, we would see the solutions business outside of that being kind of a mid to single-digits kind of growth rate in normal times. That’s somewhat limited because it does work kind of an in/and out module where you have new deals coming in as older node deals are dropping off. So there is overall growth there, but it’s not significant, you are not going to see 20% or 30% growth rates there.

Okay, and looking at your capital structure between the net cash on the balance sheet and free cash flow just what do you see as your priorities for excess cash and how are you thinking about acquisitions versus share repurchase versus other alternatives?

Yes, we have a lot of discussions internally and actually quite a few externally with our investors regarding this question, because we do generate cash and we continue to expect to be able to do that. When we discuss this topic with our board. Our board is fairly clear on how we should be prioritizing or look at this. Our number one goal is to accelerate to enhance our ability to bring out our new technologies and that will play a significant role and where the company goes as we progress into the late teens. Anything that we can do from a capital structure standpoint to enhance our ability to do that will be our number one priority. That could range from purchasing capital equipment, licensing technologies all the way through acquisitions and we do consider all of those. Beyond that then we hire more open to other ideas. We do have approved stock repurchase program which we’ll be backing and executing against as we go throughout 2015. And then we are looking at all the time what to do beyond that. We don’t have any decisions on that, but it’s an active discussion point at the board.

Okay, great. I appreciate all the details, thanks.

[Operator Instructions] Your next question comes from the line of Tom Diffely from D.A. Davidson. Your line is open.

Yes, good afternoon. Greg, just a quick follow-up in your comments on the designed silicon portion. For a while now we’ve been talking about low-to-mid single-digit growth in that space. But I’m curious now we had a bit of an artificially low level in 2014, because of these builds. Are you talking about modest growth of the lower level?

Yes, I think it’s still modest growth and probably would be in the upper end of our range most likely, but it would still be fairly modest growth outside the impact of the $6 million catch up, but it would probably be higher than our normal year, but still within a range.

Okay, and that’s mainly because one of these larger customers is not as active on a go forward basis, as they had been in the previous years.

Yes, I think that’s a reason to only way to think about it.

Okay, and then you also talked about you are growing the industry, what is your current view of the industry growth this year?

Well, there is a lot of different views out there, we basically kind of look at what a multitude of people are saying. I’ve seen overall semiconductor numbers in the mid-to-high single-digits. I’ve seen speculations on foundry growth between high single-digits and low double-digits, but I think centering somewhere in that 5% to 10% range is probably a reasonable approach.

Okay, all right. And then when you are cautious this year, and you won’t expect in the FinFET rev to happen until 2016 anyway, what is the incremental piece of cautiousness in your voice I guess?

Yes, I don’t – hi, this is me John. We don’t – there is nothing really more incremental we just thought there was an awful a lot of confusion out there about it never happening or being quite negative, we think there will be a ramp in FinFETs this year. We are muted about how big that ramp will be I think than a fair number of people, but at least we see there are yields on parts and those parts are making their way through - there will be yields and there will be a ramp in FinFETs this year, how big we don’t know. We have them saying forever that 2015 will mostly be 28 and 20 and maybe some small amount of 14 contributing. That’s what we’ve been trying to communicate today.

Okay, to that end have you seen any additional capacity been added at 20, 28 because of the slowdown in the FinFET ramp?

We are starting to see the second tier foundries add capacity or plan capacity in 28-nanometer and we do think actually that continues to represent a good opportunity for us. So in this year the bulk of our gainshare is kind off of our first year 28-nanometer manufactures with some growing portion coming from kind of the second tier folks. We expect as we go out into the future there are more business opportunity for us on 28-nanometer as continued gainshare to first tier and growing opportunity at the second tier producers.

Okay, and so over the last quarter or two - you have been more actively engaged with so called second tier players?

Yes, I think yes we’ve been thinking if you look at my prepared remarks we do mention, we see a fair amount of opportunity in the new markets.

Okay, and you specifically mentioned China I believe outside of I guess one of the bigger players there, are you seeing an expansion to multiple potential customers in the regions?

Yes, what we see in China first and foremost is the fabless and we’ve had a lot of activity with them, they are consuming silicon and conventional foundries at this point. And we see them as a growth opportunity for our DFM solution as well including our scribes and Direct Probe Characterization Vehicles and templates. We are seeing now multiple factories in China on 28-nanometer, 40-nanometer - it is the largest player in China as well as new entrants there and I think you are probably aware of some of the Taiwan foundries now expanding capacity in China as well and we see all of those as a meaningful opportunities for us.

Okay, at some point you think software will become a big enough component to breakout?

At some point in time I would expect that yes.

Okay. And then also Greg, you talked about an effective tax rate of 22% to 24%. What would that be if the R&D tax credit came back again?

If the R&D tax credit comes back, we would probably see that rates drop by at least a couple of points. There was a bigger impact this year, but we would see at least a few points. Yes.

Okay. And then finally it sounds like you are going to make some more investments this year what's your view of OpEx over the next several quarters?

Without giving specific guidance, yes we are definitely going to step up our investment in the development side of R&D as we're moving projects out of kind of early research phase into taking it to actual market introduction stages. I would classify that as probably a 5% to 10% higher increase than we were talking about before, so you know I think many people have modeled it in the 15% to 20% growth, I would probably add five points to that.

Okay. All right. Thank you very much.

Your next question comes from the line of Gus Richard from Northland. Your line is open.

Hi, thanks for taking the question. Can you sort of for the year for 2014 kind of give a split between gainshare revenue from 28, 20 and maybe more mature nodes.

Yes, I believe if you give me one second, I believe that gainshare from the 28, 32-node contributed north of 84% in the year and…

The rest is…

Yes the rest is just either older nodes, we have immaterial amount on other nodes at this point in time. So it’s really 28, 32.

Okay, got it and you expect that volume to continue to grow and your customers to benefit as more people come up on 28.

Yes.

All right and then, I think you talked a little bit about some new contracts, could you just swing back and go through that discussion again, it sounded like you have a new pilot program and another new customer ramping.

Yes. Gus this is John. So I spoke of a yield where engagement – that’s was with the existing client across multiple factories, and extension expansion of a yield ramp engagement with again our existing client and a new template DFM engagement again at 14-nanometer with an existing client, those for the new activities there was a pilot with a new foundry Yield Ramp across multiple nodes that is a new client. We expect that to expand in 2015, and then software license and support agreements for Exensio with also a new customer. And then there were three existing customers all from expanded software licenses and agreements for FTC solution rather substantial.

And then just one final one for me when you look at you know sort of what you wrote-off at the end of the third quarter in terms of the contracts you are working on. And then look at the revenue recognizes at delta between what’s wrote-off and what you are recognizing, what makes up the difference between those two numbers.

I think your question is we wrote-down about $1.9 million in Q1 we are going to recognize about $6 million is that your question?

No, I think in the original press release in September you said that you are going to miss like $10 million to $12 million in revenue. Because you couldn’t get the customer design and then when you put of a press release in early January indicated that the revenue was going to be $6 million for the first quarter and I was just wondering what’s the delta between those two numbers, what you are going to recognize in revenues…

Right, so agreement we reach with customer meant that we were no longer require, we got a fixed revenue per wafer. We no longer needed to achieve targets. And as a result incremental fixed fees work to achieve those targets they did not contract us for and we did not generate that revenue, I would explain that difference of about $5 million - middle of $10 million to $12 million and 6 million. From our side we took out any risk on yields on the FinFET node with that manufacturer.

Okay got it.

We take out risk we are done, risk they say is that incremental revenue that incremental cost.

Okay got it. So effectively you just took out your risk when they start ramping FinFET wafers should get paid and…

[Indiscernible]

Yes, okay got it. And then I am sorry to ask one more question. In terms of that can you give any color around what royalty rate will be on that customer at 14-nanometer on the one we have a gainshare, is it inline with historics?

Its not inline with historics, it is however inline for the amount of the technology that was delivered. Because the contracts were stopped at the point they were not a 100% of the schedule deliveries of the IP was made. So the royalty rate was reduced by a proportionate amount.

Can you handicap that in terms of percentage or historic.

Well, I think if we use the kind of ratio of the reduction in the fixed fees and apply that to kind of our standard royalty rate you get – you would be in the ballpark.

Perfect, that makes conclusion. Thank you so much. End of Q&A

At this time, there are no more questions. Ladies and gentlemen this concludes the program. Thank you.