Pdf Solutions Inc (PDFS) Q2 2021 Earnings Call Transcript

Pdf Solutions Inc  (NASDAQ: PDFS) Q2 2021 earnings call dated Aug. 10, 2021

Corporate Participants:

Joseph Diaz — Managing Partner

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Adnan Raza — Executive Vice President of Finance and Chief Financial Officer

Analysts:

John McPeake — Rosenblatt Securities — Analyst

Tom Diffely — D.A. Davidson — Analyst

Christian Schwab — Craig-Hallum Capital — Analyst

Andrew Wiener — Samjo Capital — Analyst

Gary Schnierow — RiverPark — Analyst

Presentation:

Operator

Good day and thank you for standing by. Welcome to PDF Solutions’ Second Quarter 2021 Conference Call. [Operator Instructions]

I would now like to hand the call over to Joseph Diaz of Lytham Partners. Please go ahead, sir.

Joseph Diaz — Managing Partner

Thank you, Donna and thanks to all of you for joining us today on this call. We appreciate your time and your ongoing interest in PDF Solutions. As the operator indicated, my name is Joe Diaz. I’m a Managing Partner at Lytham Partners. We are the Investor Relations consulting firm for PDF. If you do not yet have a copy of today’s press release, it’s available on the Company’s website at www.pdf.com. Some of the statements made during the course of this conference call will be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 including statements regarding PDF’s future financial results, 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 the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2020 and similar disclosures in subsequent SEC filings. The forward-looking statements and risks stated on this conference call are based on information available to PDF today. The Company has no obligation to update them.

With that said, I’d like to introduce John Kibarian, PDF Solutions’ President and Chief Executive Officer, who will be followed by Adnan Raza, Executive Vice President and Chief Financial Officer. At the conclusion of management’s prepared remarks we will open the call for your questions.

Let me now turn the call over to John Kibarian, President and CEO of PDF Solutions. John?

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Thank you for joining us on our call today. If you’ve not already seen our earnings press release, management report and 10-Q for the second quarter, please go to the Investors section of our website where each has been posted. We appreciate your taking time to join us today. I will start the discussion by providing commentary on our Q2 highlights. From there I’ll provide our impressions of the semiconductor industry and conclude with our expectations for PDF business in the second half of the year before handing over to Adnan for more detailed financial update.

Highlights for the second quarter show progress towards our long-term objective of being the go to manufacturing data analytics platform for the semiconductor and electronics industry. Building on Q1, business activity in the second quarter was very strong. For the first half of the year, bookings were up 60% more compared with the first half of 2020 and total backlog as of June 30, 2021 has more than doubled compared to June 30, 2020. As we have said before, we believe that a successful manufacturing analytics platform requires the right data, data quality and analytics of the equipment edge. Increasingly, customers are requiring the platform to be on the cloud where they can benefit from both SaaS model and supply chain wide use of the analytics platform which fosters collaboration between them and their suppliers.

In the second quarter we demonstrated our ability to bring the customers the right data with strong bookings for leading edge solutions applied to customers’ developing and ramping processes from 28 nanometer to 3. In particular, there were two contracts at node [Phonetic]. The first is a multi-year multi-node integrated DRAM contract for an existing Chinese customer. The second is a quick start agreement with the customer to begin deployment of Exensio CV infrastructure in a DFI system on a subscription basis. This already multi-million dollar agreement enabled us to quickly start the deployment of these systems while the larger multi-year subscription contract for those first — for the first notice completed.

The industry’s increased interest and having analytics of equipment edge and reflected in part by another strong quarter for the Cimetrix connectivity products. This quarter included orders from some of the most complex front end fab equipment as well as customer assembly tools. Now this is with equipment customer starts with licensing our software development kit or SDKs to enable integration of our software with their equipment. They then pay us for runtime licenses for each tool on which the software is included. For the first half of the year, we experienced record revenue from runtime licenses. We also had strong design wins on new equipment platforms that bodes well for future runtime licenses. Our SaaS bookings continue to grow in the quarter as Exensio customers adopt our cloud.

In the second quarter, one of the largest US based fabless companies signed a contract with us to move their on-premise deployment to the cloud enabled by our big data solution. They found like most companies who benchmark that the performance and cost advantages of moving to Exensio cloud are quite meaningful. Given the growth of Exensio cloud, we anticipate having a multiple petabytes of data under management over the next few years.

In the second quarter, we recognized revenue from the first sales by Advantest of our first integrated product that leverages their knowhow and test and Exensio’s capabilities in adoptive test. This revenue is over and above the $10 million per year minimum commitment that Advantest and PDF agreed to when the partnership was initiated. The sale of this integrated product in less than a year from our signing of the partnership agreement demonstrates the advantage of collaboration between the companies and importantly provides Advantest with unique and differentiated capabilities in the marketplace. Looking at the first half of the year, we are very pleased with the progress achieved to date. On a year-over-year basis, we grew analytics revenue 37% for the first half of the year and 29% for Q2.

I would now like to turn to what we’re seeing in the industry. Overall, semiconductor and electronic companies continued elevated investments and process control a new node bring up, which bodes well for our business. We believe that we will see continued strong interest in our products in the second half of the year. As we discussed earlier this year, we do anticipate legacy gain share contracts rolling off in the third quarter to resulting gain share in the second half of the year below the first half.

That said, due to strong backlog and anticipated bookings for the remainder of the year, we believe Q3 revenue should exceed Q2 revenue and we anticipate this growth to be broad based led by continued strong bookings of our analytic solution for leading edge customers and our cloud offering for more broadly. We are pleased with the progress we made in the first half of the year and making PDF Solutions the manufacturing data and analytics platform for the industry which helps us build recurring revenue streams to provide greater visibility and predictability of our financial results.

Finally, I want to thank our employees for nimbly supporting our customers and continuing to innovate in the COVID-19 environment.

Now, I’d like to turn the call over to Adnan for a review of the financials after which we’ll open the call up to your questions. Adnan?

Adnan Raza — Executive Vice President of Finance and Chief Financial Officer

Thank you, John. Good afternoon, everyone. Good to speak with you all again today and I hope all of you and your families are keeping safe. We are pleased to review the financial results of the second quarter and to bring you up to date on the progress of the business. Our Form 10-Q has also been filed with the SEC today. Please note that all of 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.

Financial results for the second quarter of 2021 continued to be strong coming after a solid first quarter. Q2 total revenue was $27.4 million, up 28% from the comparable quarter last year. Analytics revenue was up 29% to $19.6 million in Q2 of 2021 versus $15.2 million in the second quarter of 2020 and represented 71% of total revenues this quarter. On a dollar basis as well as a percentage basis, we expect analytics revenue to grow further in the coming quarters. We’re making great progress towards our goal to be the largest manufacturing data analytics platform for the global semiconductor and electronics industry.

During the second quarter, revenue contribution from integrated yield ramp was $7.8 million compared to $6.2 million in last year’s second quarter, an increase of 26%. We saw strength in IYR revenue from fixed fee services as a result of a large booking from a Chinese customer which John spoke about. Overall, our business is gaining momentum. You may recall that full year 2020 bookings increased by 2.5 times that of 2019. In the first half of 2021, total bookings increased by more than 60% from that comparable high growth period last year. So, bookings continue to be very strong which sets the stage for future revenue growth.

Given the strength in bookings and backlog, we believe analytics will more than offset any decline in IYR revenue in the coming quarters. Our backlog is very strong and continues to grow. At the end of Q2 2021, our backlog was $138.6 million compared to $63.5 million in Q2 of 2020, an increase of 118%. While we do not expect this triple-digit percentage growth to continue going forward, we believe the momentum building in the backlog will continue in the coming quarters as our bookings continue to be strong.

During the quarter, we continued to make progress toward our non-GAAP gross margin goal of 70%. Favorable product mix got us to 65% gross margin in Q2 2021. The transition to software continues to increase gross margin which is especially important given lower anticipated gain share revenues. The growth in bookings and backlog provide us confidence that we can continue to progress towards our gross margin goal. On the spending side compared to Q2 of prior year, our cost of sales were up $1.8 million primarily due to personnel-related cost from our Cimetrix acquisition and also due to investments in cloud, hardware and software infrastructure to deliver on customer contracts.

Within operating expenses, our R&D increased by $3.3 million compared to Q2 of prior year primarily due to personnel and subcontractor related costs from Cimetrix and PDF side. Our SG&A increase of $1.6 million compared to Q2 of prior year was driven by the Cimetrix acquisition. As John mentioned, with regards to DFI and CV Systems, some of our customers are increasingly looking at Exensio, DFI and CV as a combined analytics solution for a leading-edge technology nodes.

On the cash flows, we generated $8.1 million in cash flow from operations and we expect to generate cash from operations for the year consistent with our history. We ended the quarter with cash and cash equivalents of approximately $139 million compared to $145 million at December 2020. During the first half of the year, we used cash for stock buybacks of approximately $4.5 million, payments related to the Cimetrix acquisition and continued cloud infrastructure investments for future growth. We believe that the strength of our balance sheet positions us well to consider strategic acquisition opportunities as they become available.

Looking forward, given our backlog and anticipated strong bookings, we are gaining confidence with the expected results for the remainder of 2021. And now expects full year calendar year 2021 total revenues to grow between 20% to 25% on a year-over-year basis. We also expect full year 2021 analytics revenues to grow more than 30% on a year-over-year basis.

With that, I’ll turn the call over to the operator to commence the Q&A session. Operator?

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from the line of John McPeake from Rosenblatt Securities. Your line is now open, sir.

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Hello, John.

Operator

Hello. Mr. John McPeake, your line is now open.

John McPeake — Rosenblatt Securities — Analyst

I’m sorry I had mute. It’s not Zoom and I still had mute. Okay. What I was saying, when I was you on mute was nice job, guys. And I’m going to kick the cut [Phonetic] off with a somewhat dull question. But my calculations right here looks like DSOs which have been kind of a thorn here have come down nicely, is that right?

Adnan Raza — Executive Vice President of Finance and Chief Financial Officer

Yeah. Our AR balances, yes, we did really well with cash collections this quarter compared to the last quarter, we had some work to do and to be honest with you, we put in some new processes this quarter, and the team did a fantastic job collecting cash of some of our customers this quarter.

John McPeake — Rosenblatt Securities — Analyst

Yeah, I mean I’m not doing the exact days to the day of the quarter using 90 days, it looks like it went from 129 to 99. Can it stay down here? Do you think, Adnan?

Adnan Raza — Executive Vice President of Finance and Chief Financial Officer

I think, yeah, look, I mean, we will continue to stay focused on this metric, obviously it’s important for us to continue building cash. Depending on the customer and the region, where they’re located in sometimes that might skew the results one way or the other, but I can tell you this that over the last few quarters, we have increased focus on this and hope to continue this momentum.

John McPeake — Rosenblatt Securities — Analyst

Nice work on that. And then I guess I’ll ask kind of a open-ended question a little bit. There has been an increased focus on domestic production particularly trying to get leading edge production in the United States, not just a couple of 100 miles from nuclear missiles of an adversary, potential adversary of ours. And is that affecting your bid business at all, guys, that’s just kind of an open-ended question, but I’d love to hear what you’re seeing.

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Sure, yes, I will take that one John. So I think, specifically there is — I know the act that the US government is passing, which is about $52 billion, should that pass, and we anticipate what it would probably create additional opportunities for us. We do have customers that are locating factories in United States, and also customers that are expanding development across multiple modes, not just the leading edge in the US. And that is impacting in partly in my prepared remarks. I think that is happening almost irrespective of the government activity, but it probably being enhanced by the government activity.

That is impacting, as we said, in my prepared remarks, anticipated continued strong bookings on the leading edge, because we do see customers and as it was Adnan’s prepared remarks, who like the integration of the characterization vehicles, Exensio and DFI, for bringing up these very complex 3D technologies.

John McPeake — Rosenblatt Securities — Analyst

But what has worked for the leader there? So, I will pass it along and get back in the queue if I had any another question. Thanks, guys.

Operator

Thank you. And your next question comes from the line of Tom Diffely from D.A. Davidson. Your line is now open, sir.

Tom Diffely — D.A. Davidson — Analyst

Yeah, good afternoon. John, I was hoping to get a little more color. I think you made a comment about how the customers are looking at DFI with more of an analytic solution than to it than before. Maybe just a little more color on what you are seeing in DFI, and what that opportunity looks like?

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Yeah, sure, Tom. So, about year ago [Phonetic], customers — Chinese customers came to us with a series of issues they were seeing in manufacturing in particular and our team figured out ways of using the system to inspect the product by using a combination of our part of Exensio called FIRE that analyzes product layouts. Just going to get a little technical on products, be careful how deep I go.

But identifying what looks like a DFI fill so on a given point of the process, even if it was just part of the active circuit, and then analyze all of that. What you find is, there is tremendous amount of data you create, literally you are measuring tens of billions of these things on the wafer, and you are seeing lots of different dependencies in the layout, which they can go back and use to tune how they do design. And it would turn it to be very helpful for calculating some of the key issues on designs and bring up. And it kind of gets to the question that John asked too, we are seeing, as customers are trying to bring up these complex 3D processes. This capability of combining the ability to analyze the product layout with the FIRE capability, drive the machine to all of those spots, take that data and really have a huge machine learning problem at all the different layout styles that we are in and there are failure rates, because you are collecting tremendous statistics you really can’t see any other way. And it is a very unique capability and one that helps to learn a lot of these process design interactions very efficiently.

Tom Diffely — D.A. Davidson — Analyst

Okay. So is the thought though that they would use more service going forward to do the big data analysis or would they want to keep that data internally and try to…

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

No. The typical — the machines always go end up being onsite, that machine plus the cloud deployment of Exensio would all be part of an overall subscription. And there is a big advantage of using Exensio in the cloud for this, because you need to scale up and down the computing quite substantially to look at these dependencies, and that is why it is an overall bundle of basically hardware and software, as the cloud deployment is also a hardware software combination.

Tom Diffely — D.A. Davidson — Analyst

Yeah. Okay. That’s helpful, thank you. And then when you look at the mix of business in the second half, your gain share coming down, but, the analytics doing quite well, does that meaningfully impact the margin structure, do you think over the next couple of quarters?

Adnan Raza — Executive Vice President of Finance and Chief Financial Officer

Yeah. I think it’s early to say. I think, look, we have said in our prepared remarks is we feel confident about heading towards 70%. How many quarters it takes? We are not being precise on. To your point, it will depend a little bit on the mix between those deals as well, obviously larger deals. We hope that it will come with a little bit better margin. I think for the rest of the year, it is fair to say that, it stays flat maybe incrementally up at best.

Tom Diffely — D.A. Davidson — Analyst

Okay. And then you also mentioned that, obviously the biggest adder or to the costs over the last year have been personnel. Are there expected increases in personnel expenses over the next couple of quarters as well?

Adnan Raza — Executive Vice President of Finance and Chief Financial Officer

Yes. So, it is a great question. So seminar do our revenue, talks as well, what we will be doing, yes, we will be investing a little bit more, but I think our goal is going to be that we are spending at a slower rate than the revenue is growing. So, on a combined spend basis, then you look at cost of sales with opex together, we should be spending less than the revenue growth, which should hopefully trickles a bit more to the bottom line.

Tom Diffely — D.A. Davidson — Analyst

Okay. And then finally for the backlog, obviously a nice impressive backlog. Can you give us some sense of what the duration or what the average length of the backlog is?

Adnan Raza — Executive Vice President of Finance and Chief Financial Officer

Yes. Majority of the contracts, within the next two years, majority of the realization of that backlog and the rest of them kind of up to the five-year timeframe, but majority over the next two years.

Tom Diffely — D.A. Davidson — Analyst

Okay. And then maybe just one more for you, John. When you look at your customer interactions recently, have they changed much over the last two, three quarters? Are you still in a position where it is a little harder to close some of the deals that traditionally been done in person?

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Yes, I got the question. Tom, I had a number of calls last week with customers, I did one in-person visit. And the calls are now becoming pretty natural. One executive said, Hey John we are used to doing business this way. Now, this is way to go. And so I think that we are figuring out how to work in this way better and better, our confidence on the second half of the year is probably because I do see us making great progress working this way.

And I anticipate that, even larger, complex contracts are starting to close, the one we did in China last quarter, was pretty amazing to me — sizeable contract with data that goes out over 10 years past the deployment date for this will carry us into sometime into the middle of 2030s. For a customer who are already generating gain share from and we are seeing their gain share trick circling up on the nodes that they have already deployed. So, the customer that we had some confidence and yet we are able to close that contract remotely. And I think that was probably the most difficult, right, just some language barriers and many other things. So, we do feel good about our ability to close more complex contracts in the second half of this year.

Tom Diffely — D.A. Davidson — Analyst

Great. that is good to hear. Thanks for your time today.

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Thank you.

Operator

Thank you. [Operator Instructions] Your next question comes from the line of Christian Schwab from Craig-Hallum Capital. Your line is now open.

Christian Schwab — Craig-Hallum Capital — Analyst

Hi. Good quarter guys. In fact, at the Chinese large customer that you ramped to — drove strengthen IYR. And it sounds like you have a 10-year contract? Can you give us an idea of, A, potentially how big that customer could get over that timeframe and secondly, how many other, new potential Chinese manufacturers are you talking to about using your products?

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Okay, sure. I will be thinking reverse order, Christian. So, there has been a number of customers in China, we generally don’t take them on a game share basis, because we deploy them on us, basically, on a system basis the gain share means we are going to provide teams with the technology and help them ramp yields. And that is a big invest on our part two.

So, we have been very selective on where we have taken off and prices, always seen good potential as customers we have been working with for a number of years in the early nodes, they did take longer to get to a gain share than we would have liked. But we did start seeing their gain share numbers trickle up through the second half of last year and into this year that gave us some confidence that they would be a good partner on gain share basis. This contract, the solutions part of it, the booking is, in the eight figure range, and there is a deployment period, which is, on the order of a few years, and then there was gain share period, which is 10-years. So, the title of the contract is actually longer than 10-years. But it is quite a substantial activity.

In terms of how much the contract is eventually worth Christian that is still hard for us to estimate. We have very little history with our Chinese customers in terms of how much volume they get to historically they have been very, very slow to ramp volumes, but we are seeing some improvements there. I think as the technology as they started advancing their ability to manufacture more semiconductor technologies than they have in the past.

Christian Schwab — Craig-Hallum Capital — Analyst

Okay. And is there — I guess my second question is, could you give us an update on any other potential meaningful new customers and where you sit, if there is anything you could share, even with other manufacturers and partnering with the likes of another Advantest or any type of update on anything that can happen with some large manufacturers out there, who decided that they were going to — need to get more efficient that manufacturing and kind of make the data Foundry switch, any updates there would be great.

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Yes, of course. It is super — it is like the old running joke of consulting for a large catch-up manufacturer in the greater Pittsburgh area. We everyone pretty much knows you mean when you say that. So, we are always super careful about, how we talk about customers, potential customers, Chris and I know that you understand, why. That said, we both with existing customers and customers that have historically not been big customers with PDF in the past, we have a tremendous level of activity, the bookings in the first quarter, the first half of the year already reflect some of those opportunities. And as I said, in my prepared remarks, we expect both companies that have been historically PDF customers as well as ones that have not, just to have increased bookings with their broader community in the second half of the year.

Christian Schwab — Craig-Hallum Capital — Analyst

Great. No other questions.

Operator

Thank you. [Operator Instructions] Your next question comes from the line of Andrew Wiener from Samjo Capital. Your line is now open.

Andrew Wiener — Samjo Capital — Analyst

Hi. Good afternoon, John. One pretty quickly, I just wanted to make sure I heard it correctly. Is the Chinese multi-node deal, is that include a DFI tool?

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

There are other contracts that customer says have the DFI tool onsite and that is they had the right to use some of that in part of this contract as well.

Andrew Wiener — Samjo Capital — Analyst

Okay. And then you also referenced a quick-start contract, that I think you said was DFI and Exensio. So, is that a contract that…

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

And Exensio vehicle as well.

Andrew Wiener — Samjo Capital — Analyst

So that contract contemplates the shifting of a DFI tool to that customer.

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Both correct. You actually get that machine shipped up there while we negotiate in terms of a settlement.

Andrew Wiener — Samjo Capital — Analyst

Okay. And so, again if I heard that correctly, the quick-start contract had meaningful revenues associated with it. But you are in discussions about much more significant contract that would be a broader deployment of your technology is that fair?

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

That is correct.

Andrew Wiener — Samjo Capital — Analyst

Okay. Okay. Secondarily, I just wanted to talk, you didn’t mentioned it on this call, but we have talked in the past about your DEX Networks. Maybe you can talk about, how the deployment of that is going, how DEX Networks fit in around some of the industry issues about sort of supply chain transparency and reliability and maybe some goals that you have set for this year, as far as driving either commercial deployments or driving broader adoption that would ultimately lead to commercial revenues.

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Sure. Yeah, so just obviously we always have three letter acronyms here with PDF. So let me — DEX is Data Exchange Network. These are these are outposts that we put up the, factories primarily right now was that test facilities where, they run a series of things communications with our software that lives resident on the equipment and the facilities, our cached database, you can think of that as like a short-term database.

And then an element to run business logic for evaluating rules, for quality screening on chips as they are produced. This proportion, this has been done for those customers, as they want to be able to get to the ultimate product quality, running more and more advanced models and screening. But they don’t actually run the testers. Those are run by third party suppliers for them, refer to those. And we have got under 10 of those out of the sets now growing number and we haven’t, we expect to grow that substantially as we get to the second half of this year, we have more and more flawless customers who like the ability to see their production in real time be able to establish more complex models and rules.

Some of the edge compute is all about. And this is also very much involved with our activity with Advantest, who have an edge compute box, that they are shipping on the equipment and now communicating between that edge compute element. And the cloud is becoming important as that kind of application is being accepted in the test community. And our goal for this year, I think, to over double our deployments that we have already, I said it is under 10. Now we would like to see that about double.

Andrew Wiener — Samjo Capital — Analyst

Are you generating meaningful revenue from that today or do you need to get to a certain scale? And what, what sort of transitions is to be a commercial driver of Exensio sales?

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

That is a great question, Andrew. So, and as I might have communicated in many prepared remarks with past quarter, a lot of our rollout has been deploying these DEX nodes, it is a relatively meaningful fix cost to deploy the nodes out there. And they are owned and operated by PDF. And they are multi tenant in the way that they shift data around for multiple customers.

So yeah, as you get more and more to scale, i.e. more customers that there is some incremental capacity that we have to do. It shows that if they were to grow quite substantially, but it is kind of a Y plus and X plus B and B is kind of fixed cost of deploying that system there. And that is a big piece of that costs. So yes, as we get to scale, that becomes a more and more important part of our overall Exensio cloud offering. It is generating revenue for us today. And we anticipate generating more in the coming years.

Andrew Wiener — Samjo Capital — Analyst

Okay, great. All right, perfect thank you.

Operator

Thank you. And your next question is comes from the line of Mr. Gary Schnierow from RiverPark. Your line is now open, sir.

Gary Schnierow — RiverPark — Analyst

Hey, guys, I want to follow-up on the DFI and it looks like your CV and DFI revenue was down, as you said, like, I think it was $4.6 million year-over-year. Can you put that in context of how big that is today, and it also sounds like the DFI and the eProbes businesses moving positively. So, kind of explain those two issues and give a little bit more color on where you are on the DFI equipment that you were talking about a minute ago.

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Sure Gary. Yeah. So, I will try to handle that. So we have, these are very large lumpy contracts that have in the past have been relatively short duration. This quick-start is in parts of deploy those systems in the second half of this year. The value of the quick-start from a booking standpoint was substantially larger than the revenue rec in the quarter. And as a result you can see that, revenue in the first half of the year was lower than the bookings would, give you a belief. When we look at our model for the year, we anticipate DFI and Characterization revenues to be up substantially in the second half of the year versus the first half of the year. And overall like if you look at over a kind of a four quarter rolling time period, we expect that to be a meaningful part of the analytics revenue.

As we described in Adnan’s prepared remarks, this is really a bundle of Exensio Characterization vehicles, characterization vehicle infrastructure, which includes the hardware type capabilities, as well as the DFI infrastructure, which is also a combination of software and IP and hardware our capability. So, I think when you look back out, let’s say this time next year, you are going to see quite a substantial growth in that piece of the revenue stream we anticipate over the first half of year, and this was a little bit just timing on contract bookings on with a very decent business at this point.

Gary Schnierow — RiverPark — Analyst

Okay, great. On the IYR, it sounds like you had a bump to that in the quarter from six feed business that was weighed down by a continued decline in gain share. At the same time, you expect the IYR line to be lower in the second half of the year than the first half. So, is that just a, it is the way to think of that the fixed fee business is pretty consistent at that point and the gain share continues to drop off?

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Roughly, that is a reasonable way to think about it. It is the building up of some unique opportunities you see in China. We think there is real opportunities there while some legacy older contracts that have been around for many, many years are starting to come to their end-of-life.

Gary Schnierow — RiverPark — Analyst

Got it. Okay. Makes sense. And so, if I look at IYR that why are and then offset it by continued growth in analytics to get to your annual guidance, if I’m doing the math, right, it seems that analytics should be comfortably greater than 30% growth. Am I doing that right?

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Yes. You must have been a high math to take score. Yes.

Gary Schnierow — RiverPark — Analyst

And so, and whenever the growth rate is for analytics this year, given the recurring nature and the fact that, bookings and billings are so much higher than revenue growth, I assume fair to say that, analytics growth next year should be, it is not accelerating from this year, at least relatively consistent with this year.

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Yeah. So, I think, when you did that first set of Matthew asked that question too, and I think from our perspective right now, we are kind of got our heads down and executing this year. As we get to through second half of the year, we are going to refine our model a little bit more and understand how we are going to go in your forecast because we have gotten lots of question number of times, how we are going to go and forecast 2022.

And then we will come back with a where we feel the long-term growth numbers look like for analytics and overall business. We have been very happy with the growth this year, we always like to always make it better. And we are still tuning to try to make it better. So, as we get to this height this year, we will come back to you with some more thoughts around that for next year.

Gary Schnierow — RiverPark — Analyst

Okay. Sounds great. Thanks so much for the time.

Operator

[Operator Instructions] You have a follow-up question comes from the line of Mr. John McPeake from Rosenblatt Securities. Your line is now open, sir.

John McPeake — Rosenblatt Securities — Analyst

Again, a lot of these calls are dominated by component constraint. We would have had this revenue number, or we could have this revenue number, but we weren’t able to get components, you guys only have a relatively small percentage of revenues coming from that, but I just want to get on the record that, in customer base that is taking delivery of, in some cases, equipment that may be running, symmetric, or connecting into the infrastructure that connects them to Exensio, you are not seeing that as any kind of a risk. You are you are pretty much divorced from that, particularly in the analytics part of your business, right.

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

On the analytic side, on the DFI side, from most probably we are divorced from all of that on some Cimetrix, of course every time, our equipment, companies ship equipment, and they generate the runtime licensing of both companies were to be short of components and they could not shift, then that would impact the impact of Cimetrix, we have not seen that so far in our runtime license revenue, we do watch it.

And I think, greatly I have had a number of dialogues with our partners that are in the test equipment business, and in semiconductor capital equipment business. They sell equipment to chip companies who also provide them critical pieces of chip, I think everybody and I was meeting with as VP of Operations of one of the largest chip manufacturers and a customer of ours.

Because, yes, we know very fully well, that we need to ship chips to our test equipment, providers otherwise that we can’t get the equipment we need to test our chips. So, I think there is an understanding within the industry so far, to make sure that we don’t eat the seed corn. And that has not been so we haven’t seen that impact on the Cimetrix business yet. That will be the one place we may see it on runtime licenses. Frankly, it has been very, very substantial year-over-year, and we don’t expect it to impact us in the second half of the year. That makes sense. Thank you.

Operator

Thank you, and no questions on queue. I would like to turn the call over to Mr. John Kibarian for closing remarks. Sir?

John K. Kibarian — President, Chief Executive Officer, Director and Co-Founder

Thank you for participating on our Q2 call. We look forward to talking with you again soon. Stay safe and have a great day. Goodbye.

Operator

[Operator Closing Remarks]