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PDF Solutions (NASDAQ:PDFS)
Q4 2019 Earnings Call
Feb 13, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen, and welcome to the PDF Solutions, Inc. conference call to discuss the company's financial results for the fourth quarter and the full year ended December 31, 2019. [Operator instructions] As a reminder, this conference is being recorded. I will now turn the call over to Joe Diaz of Lytham Partners.

You may begin.

Joe Diaz -- Investor Relations, Lytham Partners

Thank you, operator, and thanks to all of you for participating on today's 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're the investor relations consulting firm for PDF. With us on the call today are John Kibarian, president and chief executive officer of PDF Solutions; Kimon Michaels, co-founder and executive vice president; and Christine Russell, chief financial officer. If you have not yet received a copy of today's press release, it is available at the company's website at www.pdf.com. Before we begin with prepared remarks, please be aware that some of the statements that will be made during the course of this conference call are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, 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 PDF's annual report on Form 10-K for the fiscal year ended December 31, 2018, 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 assumes no obligation to update them.

Now I'd like to introduce John Kibarian, PDF Solutions' president and chief executive officer, who will be followed by Christine Russell, chief financial officer. John, please proceed.

John Kibarian -- President and Chief Executive Officer

Thank you for joining us on today's call. If you've not already seen our earnings press release and management report for the fourth quarter and full year, please go to the Investors section of our website, where each has been posted. As we head into 2020, I believe we start the new decade with clear and focused strategy and the potential for significant revenue growth and bottom line results. We continue to make progress on our evolution to become the leading analytics company, focused on delivering improved process efficiency and product reliability to the global semiconductor supply chain.

Going forward, our focus will be to grow our analytics business, where we can increasingly deliver our solutions via the cloud to generate consistent recurring revenue at a higher gross margin that will bring increased level of profitability to our revenue. Today's press release started reporting two revenue components, analytics and integrated yield ramp, or IYR. IYR comprises of revenue from our engagements that include performance-based incentives on customers' yield achievement, such as gainshare royalty. Analytics comprise all of the revenue, including from our Exensio software, DFI and Characterization Vehicle, without performance-based incentives.

We believe that reporting revenue in this manner will provide you with better visibility into the business. The financial results of 2019 reflect our ongoing transition to predominantly analytics business. For the quarter and for the full year, analytics comprised 60% and 58% of total revenue, respectively. It's worth noting that Q4 2019 analytics revenue grew 31% compared with Q4 2018, and full-year 2019 analytics revenue grew 29% compared to 2018.

These results are in line with our internal expectations as we deemphasize the yield ramp business. We are pleased with the progress achieved to this point and look forward to greater momentum in the coming years. We believe that some of the momentum will continue to come from getting the more than 130 Exensio customers, most of whom use only one Exensio module, for example, manufacturing analytics, to use more of the additional modules available on the high robust Exensio platform, for example, test operations, assembly operations or artificial intelligence. Additionally, significant momentum will come from moving these customers to our cloud offering.

In 2019, we undertook a number of pilots with key existing customers to achieve these goals. In the latter half of 2019, we started to see initial results. For example, in the third quarter, an IDM customer added Exensio online test control to its existing off-line analytics, resulting in a growth of our annual recurring revenue from this customer of more than 10 times to the run rate in just a few years. We also had a number of pilots with major customers in 2019 utilizing our artificial intelligence solutions and the initial results are encouraging.

For further example, in 2019, we completed three cloud pilots, and we anticipate those customers moving to Exensio deployments to PDF's cloud offering in the first half of 2020. These customers will be able to leverage the big data module of Exensio, which offers an 8x improvement in loading and retrieval times and a 40x improvement in database computation. The annual recurring revenue of our card deployments is typically more than two times the ARR of our customers who install Exensio on-premise. PDF is the No.

1 commercial solution for manufacturing yield and control because we are the only commercial analytics-focused provider with the breadth and scale required by our customers. We have a global demanding and cutting-edge customer base, which includes the leading fabless-foundry IDMs, OSATs and system companies. Not more than 25% of our sales is from any one international market, which helps to insulate us somewhat from localized events, such as the current coronavirus pandemic. While we have an office in the affected area, our employees are able to work remotely, and our global workforce is able to support customers wherever located.

We hope the spread of the virus is contained and those affected recover quickly. Luckily, we do not see a significant impact on our business from the virus in the foreseeable future. Over the years, we have made a number of acquisitions and investments to expand our offerings to address manufacturing challenges of customers building products with mature nodes in addition to our capability in aiming customers on advanced nodes As a result, we have a suite of software designed for the continued More-than-Moore environment, which represents a growth opportunity for us. Further, semiconductor companies are increasingly accepting and adopting cloud-based software, which can more effectively process the increased data volumes they generate.

Our customers need their information flow seamless and efficiently. We are the only end-to-end analytics software provider in this space capable of delivering this accelerated level of performance, and we believe that once our analytics software is integrated within a customer's operation, it will stay in place for an extended period of time. In 2019, our customer retention rate was over 95%. This stickiness will provide greater predictability to our financial and operational results on a quarterly and annual basis.

Throughout PDF's transition to an analytics company, including in 2019, we have managed expenses, invested in our future and overall generated cash to maintain a solid financial foundation for the company. In 2019, the company generated over $24 million in cash from operations, and as of December 31, we had cash and equivalents in the neighborhood of $100 million with $0 long-term debt. We believe our balance sheet provides the necessary dry powder to continue to grow our analytics business, both organically and with strategic acquisitions. Our stock repurchase programs have taken approximately $50 million in shares out of the market since 2014.

Our continuing stockholder support has allowed us to go into 2020 in a leading position, and we look forward to upcoming opportunities to continue to grow our business. As you may have seen yesterday, we announced that Christine will step down as CFO, after we file our 10-K and Adnan Raza will take over as Chief Financial Officer. We really appreciate the leadership Christine has brought to PDF, and we're sure of the best as she focuses on contributing to the industry via board participation. We are very excited to have Adnan Raza join us.

A number of months ago, Adnan began consulting for us on a number of matters. Through that period, we got to appreciate his quick mind, deep thinking and collaborative work style. When the opportunity arose, Kim and I both thought PDF would be enriched with him as our next CFO. Over the next few weeks as we meet with many of you, we will take that time to introduce Adnan to you all.

For today, I'd like to turn the call over to Christine for a review of the numbers, after which we will open the call to your questions. Christine?

Christine Russell -- Chief Financial Officer

Thank you, John. Most of you will have seen our financials in our earnings release. In addition, we've posted a management report in the Investor Relations section of our website. The report has financials and comments regarding the results of PDF for the quarter and year.

So I'll focus my comments on a few key areas. All of the financial results that we provide on this call are on a non-GAAP basis, which excludes stock-based compensation, amortization of intangibles and restructuring charges. Please refer to our press release for our GAAP results and GAAP to non-GAAP reconciliation. As John mentioned, starting with our fourth-quarter and year-end financial results, we began reporting our revenue as analytics and integrated yield ramp.

IYR reporting comprises revenue from our engagements that include performance incentives based on customers' yield achievement, such as gainshare royalty. Analytics reporting comprises all other revenue, including from our Exensio software platform, Design for Inspection solution, DFI, and Characterization Vehicle solutions. We believe this presentation provides our investors better insight into our business and the path ahead in the coming years. Our former revenue reporting segments were solutions, which included all product and services revenues, and gainshare, which represented our royalty revenues.

Fourth-quarter total revenues of $22.6 million was up 3% sequentially. In general, revenues were as we anticipated, given that our model is still in an evolution toward analytics. In the fourth quarter, analytics was the majority of total revenues at 60%. We'll continue to be very selective and strategic in generating future IYR business that can contribute to our top and bottom line results.

Although we expect to generate IYR revenue for a number of years going forward primarily as a result of gainshare royalty payments for legacy engagements, looking ahead to 2020 and beyond, our expectation for IYR revenue is that it will be lumpy quarter to quarter with a gradual decrease over the next several years as we focus on our analytics business. We expect continued growth in our analytics business, although there may be quarters where the revenue growth in analytics is offset by variable IYR revenue results. Now let's turn to cost of sales and gross margin. Non-GAAP gross margins were 64% during the fourth quarter, compared to 55% in the year-ago fourth quarter.

On a dollar basis, Q4 gross margins were $14.4 million compared to the same period a year ago, which was $10.9 million. Non-GAAP cost of sales for the fourth quarter was $8.1 million, compared to $8.8 million in the same period a year ago. The reduction in cost of sales is a result of the increasing software component of our sales, which is less expensive to deliver than a complete integrated yield ramp solution. As we continue to build the revenue contribution from software, SaaS and subscription sales, we expect gross margins to continue to expand, subject to the quarterly variability inherent in IYR.

Ultimately, we expect to achieve our target margins of more than 70%. During the fourth quarter, we entered into an agreement with TIBCO software that extends a collaboration to embed and customize Spotfire in our Exensio analytics platform. The agreement provides that PDF will continue to use TIBCO Spotfire tools for AI-powered visualization for our analytics product line, as well as adding the capability of TIBCO EBX for master data management. This creates a powerful combination of software to provide advanced life cycle product analytics for our customers.

With the TIBCO software embedded with PDF software, we solve the problem of silos of data, which only provide local optimization. By integrating the data and applying AI and ML, we can provide foresight across the entire production process, reducing the time it takes to make critical decisions that drive higher product yield, quality and reliability. The agreement extends the collaboration, which began back in 2010 by up to another decade. We expect to amortize this prepaid license over the term of the agreement.

In the fourth quarter of 2019, the true-up to round out the prior agreement and the partial quarter amortization was $260,000. The upfront cash payment will be made in Q1. Now let's look at our operating expenses, which were up 6% sequentially at $13.1 million for an increase of $700,000 quarter over quarter. R&D expense increased by approximately $300,000, primarily due to our investment in analytics R&D hiring related to our cloud and AI offerings to prepare for strong deployment of AI and cloud in the first half of 2020.

SG&A increased by almost $400,000 as a result of one-time expenses, including our October user conference and Analyst Day for $200,000 and audit fees for the end of year. We also incurred approximately $100,000 of expense for patent filings pertaining to the analytics business as we expanded our patent portfolio with additional DFI patents and machine learning and related technologies. Bottom line, we posted non-GAAP net profit of $1.1 million. Non-GAAP earnings per share in the quarter was $0.03.

Shares outstanding for Q4 were 32.4 million. Now we'll turn our attention to the balance sheet. Cash at the end of Q4 was $97.6 million, a $2.7 million decrease from the prior quarter. The primary use of cash during Q4 was $2.8 million for capex for DFI eProbe solution.

Our strong balance sheet continues to provide a solid foundation for opportunistically executing acquisitions and funding organic growth. Turning to the full-year 2019, it was a year in which we became a predominantly analytics company. Total revenues in 2019 were $85.6 million, compared to 2018 revenue of $85.8 million. In 2018, the revenue segmentation was 45% analytics and 55% IYR.

In 2019, it flipped to 58% analytics and 42% IYR. This is year-over-year growth in analytics revenue of 29% beating the target we discussed at our user conference and Analyst Day of 20% annual analytics revenue growth. IYR revenue declined by 24% compared to 2018. This is as we expected, and it resulted in flat year-over-year total revenue performance.

The IYR category includes engagements with both fixed fees in gainshare with gainshare now the majority component, which contributes to variability. With analytics revenue now the predominant component of our total revenues, we're benefiting from the increasing annual recurring revenue that provides better visibility looking forward. ARR primarily includes software and DFI and Characterization Vehicle time-based licenses, as well as support and maintenance contracts. ARR grew by close to 20% from 2018 to 2019.

We have seen a continuous trend in increasing ARR going back to 2014. In fact, since 2014, ARR has quadrupled. As expected, non-GAAP gross margins increased from 55% in 2018 to 65% in 2019. The predominance of analytics revenue in 2019, which commands more software-like margins, drove the gross margin expansion.

As we mentioned at our user conference and Analyst Day, we are ultimately targeting 70% or better gross margins. Operating expenses increased in 2019 from 2018 by 13%. During the year, we invested in additional hires in R&D in the analytics part of the business as we continue to focus on expansion of the offering. Greater than 50% of our operating expenses consist of new product development and deployment.

Turning to SG&A. During 2019, we hired directors of marketing and business development to focus on accelerating the growth in our analytics business through events, brand awareness and strategic alliances. We also incurred additional expenses in connection with legal actions to compel a slow-paying Asia customer to pay contractual fees due, of which $7.7 million was successfully collected before year-end. We posted a non-GAAP profit of $4.5 million in 2019 or $0.14, compared to a non-GAAP profit of $2.8 million or $0.09 in 2018.

Our 2019 ending cash balance of $97.6 million increased by $1.5 million compared to the prior year. During the year, we generated $25 million cash from operations and used $12 million of that cash to repurchase stock, $3 million for acquisition-related expense and the remainder for capex. In summary, during 2019, we became primarily an analytics company. We've put the components in place to drive revenue, expand margins and maintain an exceptional balance sheet.

And finally, I've greatly enjoyed working with PDF and all of you, and I hope our paths cross again in the future. We'll now turn the call over to the operator for questions. Operator?

Questions & Answers:


Operator

[Operator instructions] And we have a question on queue from Jon Tanwanteng from CJS Securities. Your line is now open.

Jon Tanwanteng -- CJS Securities -- Analyst

Good afternoon. Thank you for taking my questions. John, can you talk about the coronavirus impact on your Chinese businesses and prospects in the near term? I know you said you don't expect it to have a significant impact. But is that just a timing thing? Are you seeing a slowdown now and expected to pick back up later? In that context, has there been any change in the timing of signings or gainshare through Q1 so far? Any color or context would be appreciated.

Thank you.

John Kibarian -- President and Chief Executive Officer

Sure, Jon. Yeah. So I think there's, obviously, a couple of layers to what's going on in China. First of all are our Chinese national customers.

We have been working with them, many of them we are working with them with our folks remotely. But we see vehicles continuing to run, data being tested and analyzed, and we've continued to engage with them primarily for the customers that are outside of the Wuhan area. We know our software is being used at factories all around the country. And our cloud-based offering is continuing to be used, and we continue to engage with customers primarily remotely, though.

Then we also have international customers who have significant operations in China as well. And for those customers, we have less direct access to those facilities. They're mostly assembly and test facilities at this point. Our software runs in those facilities with less of our insight about what's going on.

Places where we run vehicles, we tend to know a little bit more about what's going on. However, I would say that the multinationals are slower to bring back up their facilities than some of the local companies. That said, we don't really foresee, at this time, a substantial impact in our business. Our customers tell us that they will be more back to full steam as we get into the next few weeks.

And we continue, even on contracting, having contracting discussions with our customers in that location. Obviously, it's a very dynamic situation. So things can change that we don't foresee at this point. But we see the customers over there being very, very resilient in finding ways to continue to maintain activity, and we are trying to support them the best way we can.

Jon Tanwanteng -- CJS Securities -- Analyst

Great. Thanks for the color. And then could you talk a little bit more about the traction with eProbe and DFI products? And if you have any updates on the Series 250 performance and any updates on expectations for more shipments this year, perhaps to the same or different clients.

John Kibarian -- President and Chief Executive Officer

Sure. Yeah. So we extend the customer -- if we have a customer, one existing machine extend this year and in a customer, and we began the second half of 2019 a paid pilot with a second customer taped out that vehicle at the end of 2019 and expect those wafers to come to our facility in the first part of this year. We also had another pilot going on with another leading-edge logic company.

So at this point, we're engaged with three leading-edge logic manufacturers for DFI capability. Virtually all are looking for the same benefits. We anticipate, as we get through this year, to have expanded activities inside those facilities, those shipping machines at a combination of those customers. We have a limited capacity in what we could ship.

So exactly where it goes to, who first and when, it's hard for me to predict right now.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. Great. And then any color on what gainshare did in the quarter? I don't know if you release that at all and kind of if there's any commentary around that?

John Kibarian -- President and Chief Executive Officer

It's primarily 14-nanometer gainshare, and it was comparable to what we see typically in Q4s over the past few years.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. Thanks. Just looking at the SG&A line, you mentioned there was a couple of one-time costs in there, Christine. Does that mean SG&A will come down in Q1 as we come through Q4?

Christine Russell -- Chief Financial Officer

Well, there are some permanent costs and there are some one-time costs. First of all, hiring a director of marketing and business development will be ongoing, especially as we pursue the analytics business that really is what you need to put wood behind your arrow to grow the business. So that part of the cost will continue. Obviously, the user conference is a one-time thing.

The patent filings are part of G&A and so those will be ongoing. So I would say, I would be thinking about SG&A as staying at about the level we are right now.

Jon Tanwanteng -- CJS Securities -- Analyst

Got it. Thank you. And then just one more thing. Christine, congrats on moving on to whatever is next.

It wasn't clear. Are you going to be on the board of the company after that? From the press release, you said you're going to be --

Christine Russell -- Chief Financial Officer

No, no, no. I'm on the board of three publicly traded companies, but not PDF.

Jon Tanwanteng -- CJS Securities -- Analyst

Got it. OK. Understood. And then, John, what priorities will Adnan be having as CFO? And kind of what made him interesting to you guys as a candidate?

John Kibarian -- President and Chief Executive Officer

Sure. Yeah. So I think Adnan has a very strong background, both on the operational side and before that on the banking side. As we've transitioned the business from being a yield ramp business to being more and more the Exensio software platform, we see ways that we can bring metrics in the way we run the day-to-day operation that are much more consistent with other software and SaaS entities, and Adnan's strong analytic skills can help us with that.

As well as the fact that every time we've made kind of these tuck-in acquisitions, there's a number of additional benefits we're able to drive in terms of expanding our footprint in the accounts, as well as connecting our customers. Internally, we say that our first goal right now is to expand the landed accounts. We have a 130 accounts, none of whom spend as much as they can with PDF, and so we're expanding that revenue. But as customers realize that a lot of their partners also use Exensio as we see lots of ways to collaborate, so M&A becomes a way of us driving a larger and larger footprint in our account and Adnan's background in M&A will also help us there as well.

Jon Tanwanteng -- CJS Securities -- Analyst

Great. I do have one more, but I'll jump back in the queue, so others have questions first. Thanks.

Operator

[Operator instructions] We have a question from Christian Schwab from Craig-Hallum Capital. Your line is now open.

Christian Schwab -- Craig-Hallum Capital Group LLC -- Analyst

Great. Thanks for taking my questions. I'm just wondering if you have any updates regarding the IYR business with potential new customers in China and have -- and know ex the coronavirus. But have we had increased dialogue there as different manufacturers begin to try to ramp up different technology nodes there? Or is there nothing new to report?

John Kibarian -- President and Chief Executive Officer

No, actually, it's a good point, Christian. We have seen an increased dialogue in the second half of 2014 with a number of leading-edge logic manufacturers in China. And we anticipate, in this first half of the year, converting some of those to licenses. We know of a handful of companies, all engaged on FinFET technology nodes.

And so when we go back to our own forecasting for the year, we are a little bit cautious on how much of that we forecast. Hence, part of our reason for saying we don't anticipate much impact is most of those factories are not in the affected area. And number two, we've been a little bit cautious about how we've forecasted that into our bookings plan. As of now, I think our team is tracking something like four ongoing FinFET technologies, all of which we're engaged with at some level.

So that's a lot for a single country. Hence we've modeled it a little bit carefully.

Christian Schwab -- Craig-Hallum Capital Group LLC -- Analyst

OK. Perfect. I don't have any other questions. Thank you.

Operator

And we have a follow-up from Jon Tanwanteng from CJS Securities. Your line is now open.

Jon Tanwanteng -- CJS Securities -- Analyst

Thank you. John, you usually run down the list of new deals or signings in the quarter. Not sure if there's anything of note that you wanted to talk about. But maybe more specifically, what are the expectations of projects or signings or licenses in your pipeline for 2020, whether it's a lot of deals from penetration of existing customers seeing your large engagements on your horizon or maybe new clients? What are you looking forwards to?

John Kibarian -- President and Chief Executive Officer

Yeah. So yeah, as we've transitioned the business with Exensio, the deal flow in a given quarter ends up becoming much larger, right? So well over 50 contracts signed in the quarter typically. And so we have very little -- so it's less -- it's hard to -- so usually, now I just select a few to tell a story rather than when it was primarily yield ramp business and you could exhaustively describe the contract signed in the quarter in four or five bullets max. And so as we look into this year, as part of my prepared remarks, we have been -- and part of the reason why we increased spending in Q4 is we completed a number of cloud products with customers, and we're told that they like the cloud performance.

We anticipate those signing in the first half of this year, and we expect to expand our number of customers on the cloud. As I said, generally, that means the ARR is well over two times the run rate when they're on-premise. At our user conference, we had had one of the guest speakers was an executive from AWS because a lot of our customers, we are bringing them to the Exensio cloud that is on AWS. We expect the first half to be a substantial part of the bookings activity.

Moreover, we completed a couple of AI deployments and the pilots in the second half of 2019 and already have approval from customers to roll out and at least one of the customers on a production rollout and anticipate the other as well, and we believe that will also drive substantial growth. So there's a number of, what we call, expand-the-landed accounts. Accounts that have been PDF accounts, in some cases, 10 or 15 years, used either Exensio as point tools that were a yield ramp customer, where they're now looking at deploying Exensio on a platform basis. For the first half of the year, it's greatly -- those activities, some vehicles on subscriptions for vehicles that we also see in leading-edge logic manufacturers outside of China, and then, as Christian brought up, we do see some increased yield ramp activity in China itself.

With the activity on DFI, we anticipate the extension of our main customer this year, as well as expansion into additional customers as we get through this first half of the year as we complete up the pilots that we're doing with them in this first part of the year. So obviously, we're generating revenue from those pilots already, but we'd like to get that machine going from our lab into their fab. So I think that kind of captures the majority of the activities that are going on. In part, that explains a little bit what Christine discussed about our TIBCO spend.

As we're deploying more and more with our customers, they start seeing the need of looking at Exensio as their data lake or their overall data environment. Historically, Exensio has been a system that customers use for the data types that PDF supports and installs, which is most engineering data in a fab, but we've now had customers wanting to load in financial data into Exensio, product costing data and other data for newer modules. And so the extension with TIBCO allows them to load data and on-demand data that we may not actually typically get access to, so they can do additional AI activities. So we do see, as we get out in the second half of the year, opportunities to expand customers who start looking at Exensio as a data lake for them rather than just as a platform for all their engineering analysis.

Jon Tanwanteng -- CJS Securities -- Analyst

Great. Thanks, John. I appreciate it.

Operator

And our next question is from Gus Richard from Northland. Your line is now open.

Gus Richard -- Northland Capital Markets -- Analyst

Yeah, thanks for taking the question. In terms of gainshare, I think you have still a few big contracts. When do those, particularly the 14-nanometer contracts, roll off? How many more years do you have on them?

John Kibarian -- President and Chief Executive Officer

Yeah. So some of the early ones roll off over the next couple of years. And then there's others that are just starting up that will have many years past that. There are gainshare contracts that run out -- I mean, primarily, once you get through the first half of the 2020s, so let's say, 2022 time frame, the majority of the non-Chinese facilities roll off.

And as you go from 2022 to 2030, primarily, it's China and, to a lesser extent, Taiwan entities that will drive the majority of the gainshare.

Gus Richard -- Northland Capital Markets -- Analyst

Got it. Thank you. And then in terms of -- sort of what you're thinking about in terms of M&A? You did the KINESYS acquisition a while back was very successful. Do you have a number of companies that you're looking at? Are you looking at more data sources? Can you just sort of give any color around what the M&A pipeline might look like?

John Kibarian -- President and Chief Executive Officer

Sure, Gus. It's actually relatively robust. There are additional data types typically outside of the fab at this point as we have most of the fab data types included and even most of the test and assembly data types. So there are additional data types that we're looking.

There are also -- what we found -- if you look at the Syntricity acquisition. Syntricity was a cloud-based yield management system that had a subset of functions that we had with Exensio's manufacturing analytics module. But there were a handful of customers that were very reliant on that product. When we acquired that and then integrated it, we were able to increase our footprint in those accounts because they needed some of the base capability that Exensio had.

Yet, when you would go in and sell from the outside, they already had deployed an existing product. So we do find sometimes consolidation of companies that are in the same category as us helps us expand the revenue inside those accounts. In my prepared remarks, I alluded to the fact that we're the only company that really has the scale. A lot of these companies tend to be smaller private entities, and as these semiconductor companies and system companies see manufacturing analytics as a strategic activity in their business, and I would say, many of the CTOs and the manufacturing CIOs I meet with, all say that digitization of the manufacturing is becoming a strategic activity.

They need to have a supplier that they can actually count on. And so, a lot of those companies really kind of hit the end of their road in terms of what they're able to do for the customer. But the customer has a huge investment of that software being integrated into their facilities. It's just like our retention rate is quite high, their retention rate is also quite high.

So by acquiring those companies, integrating their product onto Exensio platform, we give a lot of these customers a path toward a greater platform without needing to rip up and replace the investment that those companies have made in those companies. So there's a lot of activity in little companies like that.

Gus Richard -- Northland Capital Markets -- Analyst

Got it. And then, I know this is a tough question. Can you size the Exensio, your software, opportunity at this point? And perhaps venture, I guess, as to what the growth rate will be over the next few years?

John Kibarian -- President and Chief Executive Officer

Yeah. So at our Analyst Day, we said that we anticipated the growth rate for the business to be on the order of 20% a year. If you look at our analytics business this year, it grew at -- over last year, it grew at roughly 30%. And obviously, that's really primarily driven by Exensio and the overall analytics business.

So we anticipate the growth rate staying very robust over these next few years for Exensio and the analytics business overall. In terms of what's the serviceable market, I believe we reported that on our Analyst Day as well. And actually, off the top of my head, Gus, I don't remember the specific number. I remember it being much larger than we are now.

So it's like you [Inaudible] as long as check is much smaller than what I had in my checkbook, I was OK. So I do see that we have quite a good runway in front of us for the analytics business overall. And as it's gotten larger, as I alluded to in the collaborate, we see ways that we think, over time, the business opportunity will expand as customers start relying on analytics more and more to control their manufacturing.

Gus Richard -- Northland Capital Markets -- Analyst

OK. And then last one for me. At this point, on DFI, do you have any more significant investment that's going to be required to get, let's say, half a dozen systems out in the field?

John Kibarian -- President and Chief Executive Officer

Yes, from a development standpoint, the majority of the investment is done. There's some incremental investments we're doing on specific features. And there's always a level of software investment that's going on, particularly when you look at new applications. And our spend so far recently has been around building early purchasing of components that we need for deployment of systems at our core customers, while we're very mindful of the fact that we've told customers that if they were to order once we've gone out of the next one or two machines that will be quite a lead time for them even if we've ordered some long lead items as well.

So we feel like we're in a good position there as we have a number of companies interested in the next capability and a limited amount of capability out there.

Gus Richard -- Northland Capital Markets -- Analyst

Got it. And that's it from me. Thanks so much.

Operator

And there are no more questions on queue. I'm now turning the call over to Mr. Kibarian for closing remarks.

John Kibarian -- President and Chief Executive Officer

Thank you for participating in our Q4 call. We look forward to talking with you again soon. Have a great day.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Joe Diaz -- Investor Relations, Lytham Partners

John Kibarian -- President and Chief Executive Officer

Christine Russell -- Chief Financial Officer

Jon Tanwanteng -- CJS Securities -- Analyst

Christian Schwab -- Craig-Hallum Capital Group LLC -- Analyst

Gus Richard -- Northland Capital Markets -- Analyst

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