10-Q 1 pdfs-20240331x10q.htm 10-Q
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

 

For the Quarterly Period ended March 31, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

 

 

For the transition period from _______________ to ______________   

Commission File Number 000-31311

PDF SOLUTIONS, INC.

(Exact name of Registrant as Specified in its Charter)

Delaware

25-1701361

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

  

  

2858 De La Cruz Blvd.

  

Santa Clara, California 

95050 

(Address of Principal Executive Offices)

(Zip Code)

(408) 280-7900

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00015 par value

PDFS

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer

Smaller reporting company 

 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

There were 38,403,665 shares of the Registrant’s Common Stock outstanding as of May 3, 2024.

TABLE OF CONTENTS

 

    

Page

PART I   FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Comprehensive Income (Loss)

4

Condensed Consolidated Statements of Stockholders’ Equity

5

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3. Quantitative and Qualitative Disclosures About Market Risk

41

Item 4. Controls and Procedures

42

PART II  OTHER INFORMATION

Item 1. Legal Proceedings

42

Item 1A. Risk Factors

42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3. Defaults Upon Senior Securities

43

Item 4. Mine Safety Disclosures

43

Item 5. Other Information

43

Item 6. Exhibits

44

INDEX TO EXHIBITS

44

SIGNATURES

45

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except par value)

March 31, 

December 31, 

    

2024

    

2023

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

85,256

$

98,978

Short-term investments

 

37,628

 

36,544

Accounts receivable, net of allowance for credit losses of $890 as of March 31, 2024 and December 31, 2023

 

47,267

 

44,904

Prepaid expenses and other current assets

 

17,165

 

17,422

Total current assets

 

187,316

 

197,848

Property and equipment, net

 

36,088

 

37,338

Operating lease right-of-use assets, net

 

4,742

 

4,926

Goodwill

 

15,003

 

15,029

Intangible assets, net

 

14,747

 

15,620

Deferred tax assets, net

 

145

 

157

Other non-current assets

 

28,782

 

19,218

Total assets

$

286,823

$

290,136

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

5,729

$

2,561

Accrued compensation and related benefits

 

9,491

 

14,800

Accrued and other current liabilities

 

4,963

 

4,633

Operating lease liabilities – current portion

 

1,625

 

1,529

Deferred revenues – current portion

 

27,643

 

25,750

Billings in excess of recognized revenues

 

2,345

 

1,570

Total current liabilities

 

51,796

 

50,843

Long-term income taxes

 

2,980

 

2,972

Non-current portion of operating lease liabilities

 

4,363

 

4,657

Other non-current liabilities

 

2,271

 

2,718

Total liabilities

 

61,410

 

61,190

Commitments and contingencies (Note 11)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock, $0.00015 par value, 5,000 shares authorized, no shares issued and outstanding

Common stock, $0.00015 par value, 70,000 shares authorized; shares issued 50,173 and 49,749, respectively; shares outstanding 38,393 and 38,289, respectively

 

6

 

6

Additional paid-in capital

 

481,390

 

473,295

Treasury stock at cost, 11,780 and 11,460 shares, respectively

 

(154,616)

 

(143,923)

Accumulated deficit

 

(98,438)

 

(98,045)

Accumulated other comprehensive loss

 

(2,929)

 

(2,387)

Total stockholders’ equity

 

225,413

 

228,946

Total liabilities and stockholders’ equity

$

286,823

$

290,136

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

3

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands, except per share amounts)

Three Months Ended March 31, 

    

2024

   

2023

Revenues:

 

  

 

  

Analytics

$

38,463

$

36,326

Integrated Yield Ramp

 

2,847

 

4,433

Total revenues

 

41,310

 

40,759

Costs and Expenses:

 

  

 

  

Costs of revenues

 

13,529

 

11,904

Research and development

 

12,984

 

13,051

Selling, general, and administrative

 

16,498

 

15,645

Amortization of acquired intangible assets

 

259

 

325

Interest and other expense (income), net

 

(1,692)

 

(911)

Income (loss) before income tax expense

 

(268)

 

745

Income tax expense

 

(125)

 

(390)

Net income (loss)

(393)

355

Other comprehensive income (loss):

 

  

 

Foreign currency translation adjustments, net of tax

(522)

260

Change in unrealized gain (loss) related to available-for-sale debt securities, net of tax

 

(20)

 

7

Total other comprehensive income (loss)

(542)

267

Comprehensive income (loss)

$

(935)

$

622

Net income (loss) per share:

Basic

$

(0.01)

$

0.01

Diluted

$

(0.01)

$

0.01

Weighted average common shares used to calculate net income (loss) per share:

 

Basic

 

38,500

 

37,737

Diluted

 

38,500

 

38,859

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

4

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands)

Three Months Ended March 31, 2024

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Treasury Stock

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Shares

    

Amount

    

Deficit

    

Loss

    

Equity

Balances, December 31, 2023

38,289

$

6

$

473,295

11,460

$

(143,923)

$

(98,045)

$

(2,387)

$

228,946

Repurchase of common stock

(202)

202

(6,899)

(6,899)

Issuance of common stock in connection with employee stock purchase plan

 

74

 

 

1,916

 

 

 

 

 

1,916

Issuance of common stock in connection with exercise of options

 

1

 

 

25

 

 

 

 

 

25

Vesting of restricted stock units

 

231

 

 

 

 

 

 

 

Purchases of treasury stock in connection with tax withholdings on restricted stock awards

 

 

 

 

118

 

(3,794)

 

 

 

(3,794)

Stock-based compensation expense

 

 

 

6,154

 

 

 

 

 

6,154

Comprehensive loss

 

 

 

(393)

 

(542)

 

(935)

Balances, March 31, 2024

 

38,393

$

6

$

481,390

 

11,780

$

(154,616)

$

(98,438)

$

(2,929)

$

225,413

Three Months Ended March 31, 2023

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Treasury Stock

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Shares

    

Amount

    

Deficit

    

Loss

    

Equity

Balances, December 31, 2022

37,431

$

6

$

447,415

11,182

$

(133,709)

$

(101,150)

$

(2,550)

$

210,012

Issuance of common stock in connection with employee stock purchase plan

 

98

 

 

1,663

 

 

 

 

 

1,663

Issuance of common stock in connection with exercise of options

 

21

 

 

345

 

 

 

 

 

345

Vesting of restricted stock units

 

286

 

 

 

 

 

 

 

Purchases of treasury stock in connection with tax withholdings on restricted stock awards

 

 

 

 

133

 

(4,101)

 

 

 

(4,101)

Stock-based compensation expense

 

 

 

4,884

 

 

 

 

 

4,884

Comprehensive income

 

 

 

 

 

 

355

 

267

 

622

Balances, March 31, 2023

 

37,836

$

6

$

454,307

 

11,315

$

(137,810)

$

(100,795)

$

(2,283)

$

213,425

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

5

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

Three Months Ended March 31, 

    

2024

    

2023

Cash flows from operating activities:

Net income (loss)

$

(393)

$

355

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

Depreciation and amortization

 

1,064

 

1,304

Stock-based compensation expense

 

6,110

 

4,884

Amortization of acquired intangible assets

 

843

 

878

Amortization of costs capitalized to obtain revenue contracts

 

634

 

456

Net accretion of discounts on short-term investments

(485)

(231)

Deferred taxes

 

9

 

(23)

Other

 

(74)

 

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

(2,389)

 

(4,872)

Prepaid expenses and other current assets

 

(408)

 

(973)

Operating lease right-of-use assets

 

306

 

302

Other non-current assets

 

(5,864)

 

(476)

Accounts payable

 

1,801

 

1,261

Accrued compensation and related benefits

 

(5,214)

 

(3,132)

Accrued and other liabilities

 

213

 

260

Deferred revenues

 

1,529

 

723

Billings in excess of recognized revenues

 

775

 

(1,510)

Operating lease liabilities

 

(319)

 

(188)

Net cash used in operating activities

 

(1,862)

 

(982)

Cash flows from investing activities:

Proceeds from maturities and sales of short-term investments

 

19,000

 

7,000

Purchases of short-term investments

(19,619)

(6,351)

Purchases of property and equipment

(2,023)

(2,902)

Net cash used in investing activities

 

(2,642)

 

(2,253)

Cash flows from financing activities:

 

 

  

Proceeds from exercise of stock options

 

25

 

345

Proceeds from employee stock purchase plan

 

1,916

 

1,663

Payments for taxes related to net share settlement of equity awards

 

(3,794)

 

(4,101)

Repurchases of common stock

 

(6,899)

 

Net cash used in financing activities

 

(8,752)

 

(2,093)

Effect of exchange rate changes on cash and cash equivalents

 

(466)

 

86

Net change in cash and cash equivalents

 

(13,722)

 

(5,242)

Cash and cash equivalents at beginning of period

 

98,978

 

119,624

Cash and cash equivalents at end of period

$

85,256

$

114,382

Continued on next page.

6

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED

(Unaudited)

(in thousands)

Three Months Ended March 31, 

2024

    

2023

Supplemental disclosure of cash flow information:

Cash paid during the year for taxes

$

668

$

1,985

Cash paid for amounts included in the measurement of operating lease liabilities

$

405

$

276

Supplemental disclosure of noncash information:

Property and equipment received and accrued in accounts payable and accrued and other liabilities

$

745

$

1,714

Advances for purchase of fixed assets transferred from prepaid assets to property and equipment

$

$

21

Operating lease liabilities arising from obtaining right-of-use assets

$

142

$

Property and equipment transferred to sales-type leases

$

3,652

$

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

7

PDF SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The interim unaudited condensed consolidated financial statements included herein have been prepared by PDF Solutions, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), including the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The interim unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary (consisting only of normal recurring adjustments) to present a fair statement of results for the interim periods presented. The operating results for any interim period are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024.

The interim unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all intercompany balances and transactions.

The accompanying interim unaudited condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these condensed consolidated financial statements include revenue recognition, the estimated useful lives of property and equipment and intangible assets, assumptions made in analysis of allowance for credit losses, impairment of goodwill and long-lived assets, realization of deferred tax assets (“DTAs”), and accounting for lease obligations, stock-based compensation expense, and income tax uncertainties and contingencies. Actual results could differ from those estimates and may result in material effects on the Company’s operating results and financial position.

Recent Accounting Standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact of the new standard on the consolidated financial statements.

8

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2024. Entities are permitted to early adopt the standard for “annual financial statements that have not yet been issued or made available for issuance.” Adoption is either prospectively or retrospectively, the Company will adopt this ASU on a prospective basis. The Company is currently evaluating the impact of the new standard on the consolidated financial statements and related disclosures.

Management has reviewed other recently issued accounting pronouncements issued or proposed by the FASB, and does not believe any of these accounting pronouncements has had or will have a material impact on the condensed consolidated financial statements.

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company derives revenue from two sources: Analytics revenue and Integrated Yield Ramp revenue.

The Company recognizes revenue in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”). ASC 606 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. Revenue is recognized when control of products or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those promised products or services.

The Company determines revenue recognition through the following five steps:

Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, performance obligations are satisfied

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectibility of consideration is probable.

Contracts with Multiple Performance Obligations

The Company enters into contracts that can include various combinations of licenses, products and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative basis using the standalone selling price (“SSP”).

Analytics Revenue

Analytics revenue is derived from the following primary offerings: licenses and services for standalone software (which is primarily Exensio® and Cimetrix® products), software-as-a-service (“SaaS”) (which is primarily Exensio® products), and Design-for-Inspection™ (“DFI™”) systems and Characterization Vehicle® (“CV®”) systems that do not include performance incentives based on customers’ yield achievement.

9

Revenue from standalone software is recognized depending on whether the license is perpetual or time-based. Perpetual (one-time charge) license software is recognized at the time of the inception of the arrangement when control transfers to the customers if the software license is considered as a separate performance obligation from the services offered by the Company. Revenue from post-contract support is recognized over the contract term on a straight-line basis, because the Company is providing (i) support and (ii) unspecified software updates on a when-and-if available basis over the contract term. Revenue from time-based-licensed software is allocated to each performance obligation and is recognized either at a point in time or over time as follows. The license component is recognized at the time when control transfers to customers, with the post-contract support component recognized ratably over the committed term of the contract. For contracts with any combination of licenses, support, and other services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative basis using the SSP attributed to each performance obligation.

Revenue from SaaS arrangements, which allow for the use of a cloud-based software product or service over a contractually determined period of time without the customer having to take possession of the software, is accounted for as a subscription and is recognized as revenue ratably, on a straight-line basis, over the subscription period beginning on the date the service is first made available to customers. For contracts with any combination of SaaS and related services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative basis using the SSP attributed to each performance obligation.

Revenue from DFI systems and CV systems (including Characterization services) that do not include performance incentives based on customers’ yield achievement is recognized primarily as services are performed. Where there are distinct performance obligations, the Company allocates revenue to all deliverables based on their SSPs. For those contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative basis using the SSP attributed to each performance obligation. Where there are not discrete performance obligations, historically, revenue is primarily recognized as services are performed using a percentage of completion method based on costs or labor-hours inputs, whichever is the most appropriate measure of the progress towards completion of the contract. The estimation of percentage of completion method is complex and subject to many variables that require significant judgment. Please refer to the “Significant Judgments” section of this Note for further discussion.

The Company also leases some of its DFI system and CV system assets to some customers. The Company determines the existence of a lease when the customer controls the use of these identified assets for a period of time defined in the lease agreement and classifies such leases as operating leases or sales-type leases. A lease is classified as a sales-type lease if it meets certain criteria under ASC Topic 842, Leases; otherwise, it is classified as an operating lease. Operating lease revenue is recognized on a straight-line basis over the lease term. Sales-type lease revenue and corresponding lease receivables are recognized at lease commencement based on the present value of the future lease payments, and related interest income on lease receivable is recognized over the lease term and are recorded under Analytics revenue in the accompanying condensed consolidated statements of comprehensive income (loss). Payments under sales-type leases are discounted using the interest rate implicit in the lease. When the Company’s leases are embedded in contracts with customers that include non-lease performance obligations, the Company allocates consideration in the contract between lease and non-lease components based on their relative SSPs. Assets subject to operating leases remain in property and equipment and continue to be depreciated. Assets subject to sales-type leases are derecognized from property and equipment, net at lease commencement and a net investment in the lease asset is recognized in prepaid expenses and other current assets and other non-current assets in the accompanying condensed consolidated balance sheets.

10

Integrated Yield Ramp Revenue

Integrated Yield Ramp revenue is derived from the Company’s fixed-fee engagements that include performance incentives based on customers’ yield achievement (which consists primarily of Gainshare royalties) typically based on customer’s wafer shipments, pertaining to these fixed-price contracts, which royalties are variable.

Revenue under these project-based contracts, which are delivered over a specific period of time, typically for a fixed-fee component paid on a set schedule, is recognized as services are performed using a percentage of completion method based on costs or labor-hours inputs, whichever is the most appropriate measure of the progress towards completion of the contract. Where there are distinct performance obligations, the Company allocates revenue to all deliverables based on their SSPs and allocates the transaction price of the contract to each performance obligation on a relative basis using SSP. Similar to the services provided in connection with DFI systems and CV systems that are contributing to Analytics revenue, due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex and subject to many variables that require significant judgment. Please refer to the “Significant Judgments” section of this Note for further discussion.

The Gainshare contained in Integrated Yield Ramp contracts is a variable fee related to continued usage of the Company’s intellectual property after the fixed-fee service period ends, based on a customer’s yield achievement. Revenue derived from Gainshare is contingent upon the Company’s customers reaching certain defined production yield levels. Gainshare periods are generally subsequent to the delivery of all contractual services and performance obligations. The Company records Gainshare as a usage-based royalty derived from customers’ usage of intellectual property and records it in the same period in which the usage occurs.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into the timing of the transfer of goods and services and the geographical regions. The Company determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The Company’s performance obligations are satisfied either over time or at a point-in-time. The following table represents a disaggregation of revenue percentage by timing of revenue:

Three Months Ended March 31, 

 

    

2024

    

2023

Over time

65

%  

80

%

Point-in-time

 

35

%  

20

%

Total

 

100

%  

100

%

International revenues accounted for approximately 57% and 43% of the Company’s total revenues during the three months ended March 31, 2024 and 2023, respectively. See Note 9, Customer and Geographic Information.

Significant Judgments

Judgments and estimates are required under ASC 606. Due to the complexity of certain contracts, the actual revenue recognition treatment required under ASC 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.

11

For revenue under project-based contracts for fixed-price implementation services, revenue is recognized as services are performed using a percentage-of-completion method based on costs or labor-hours input method, whichever is the most appropriate measure of the progress towards completion of the contract. Due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex, subject to many variables and requires significant judgment. Key factors reviewed by the Company to estimate costs to complete each contract are future labor and product costs and expected productivity efficiencies. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in revenue on a cumulative catch-up basis in the period in which the circumstances that gave rise to the revision become known.

The Company’s contracts with customers often include promises to transfer products, software licenses and provide services, including professional services, technical support services, and rights to unspecified updates to a customer. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. The Company rarely licenses software on a standalone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where SSP is not directly observable because the Company does not license the software or sell the service separately, the Company determines the SSP using information that may include market conditions and other observable inputs.

The Company is required to record Gainshare revenue in the same period in which the usage occurs. Because the Company generally does not receive the acknowledgment reports from its customers during a given quarter within the time frame necessary to adequately review the reports and include the actual amounts in quarterly results for such quarter, the Company accrues the related revenue based on estimates of customers underlying sales achievement. The Company’s estimation process can be based on historical data, trends, seasonality, changes in the contract rate, knowledge of the changes in the industry and changes in the customer’s manufacturing environment learned through discussions with customers and sales personnel. As a result of accruing revenue for the quarter based on such estimates, adjustments will be required in the following quarter to true-up revenue to the actual amounts reported.

Contract Balances

The Company performs its obligations under a contract with a customer by licensing software or providing services in exchange for consideration from the customer. The timing of the Company’s performance often differs from the timing of the customer’s payment, which results in the recognition of a receivable, a contract asset or a contract liability.

The Company classifies the right to consideration in exchange for software or services transferred to a customer as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional, as compared to a contract asset, which is a right to consideration that is conditional upon factors other than the passage of time. The majority of the Company’s contract assets represent unbilled amounts related to fixed-price service contracts when the revenue recognized exceeds the amount billed to the customer. The contract assets are recorded on a net basis with deferred revenue (i.e., contract liabilities) at the contract level. As of March 31, 2024 and December 31, 2023, the total contract assets included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets were $4.1 million and $6.8 million, respectively. As of March 31, 2024 and December 31, 2023, contract assets of $0.7 million and $0.9 million, respectively, are included in other non-current assets in the accompanying condensed consolidated balance sheets. The Company did not record any asset impairment charges related to contract assets for the periods presented.

Deferred revenues and billings in excess of recognized revenues consist substantially of amounts invoiced in advance of revenue recognition and are recognized as the revenue recognition criteria are met. Deferred revenues

12

that will be recognized during the succeeding twelve-month period are recorded as current deferred revenues and the remaining portion is recorded in other non-current liabilities in the accompanying condensed consolidated balance sheets. As of March 31, 2024, and December 31, 2023, the non-current portion of deferred revenues included in non-current liabilities was $1.4 million and $1.8 million, respectively. Revenue recognized that was included in the deferred revenues and billings in excess of recognized revenues balances at the beginning of each reporting period was $11.4 million and $11.4 million during the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that were unsatisfied or partially unsatisfied was approximately $262.2 million. Given the applicable contract terms with customers, more than half of this amount is expected to be recognized as revenue over the next two years with the remainder to be recognized thereafter. This amount does not include insignificant contracts to which the customer is not committed, nor significant contracts for which the Company recognizes revenue equal to the amount the Company has the right to invoice for services performed, or future sales-based or usage-based royalty payments in exchange for a license of intellectual property. This amount is subject to change due to future revaluations of variable consideration, terminations, other contract modifications, or currency adjustments. The estimated timing of the recognition of remaining unsatisfied performance obligations is subject to change and is affected by changes to the scope, change in timing of delivery of products and services, or contract modifications.

The adjustment to revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods was a decrease of $0.6 million and an increase of $2.5 million during the three months ended March 31, 2024 and 2023, respectively. These amounts primarily represent changes in estimated percentage-of-completion based contracts and changes in actual versus estimated Gainshare.

Costs to Obtain or Fulfill a Contract

The Company capitalizes the incremental costs to obtain or fulfill a contract with a customer, including direct sales commissions and related fees, when it expects to recover those costs. Amortization expense related to these capitalized costs is recognized over the period associated with the revenue from which the cost was incurred. Total capitalized direct sales commission costs included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets as of March 31, 2024, and December 31, 2023, were $2.3 million and $2.0 million, respectively. Total capitalized direct sales commission costs included in other non-current assets in the accompanying condensed consolidated balance sheets as of March 31, 2024, and December 31, 2023, were $3.6 million and $2.6 million, respectively. Amortization of these assets was $0.6 million and $0.5 million during the three months ended March 31, 2024 and 2023, respectively. There was no impairment loss in relation to the costs capitalized for the periods presented.

Practical Expedient

The Company does not adjust the transaction price for the effects of a significant financing component when the period between the transfers of the promised good or service to the customer and payment for that good or service by the customer is expected to be one year or less. The Company assessed each of its revenue generating arrangements in order to determine whether a significant financing component exists, and determined its contracts did not include a significant financing component during the three months ended March 31, 2024 and 2023.

13

3. BALANCE SHEET COMPONENTS

Accounts Receivable

Accounts receivable include amounts that are unbilled at the end of the period that are expected to be billed and collected within a 12-month period. Unbilled accounts receivable, included in accounts receivable, totaled $17.4 million and $16.4 million as of March 31, 2024, and December 31, 2023, respectively. Unbilled accounts receivable that are not expected to be billed and collected during the succeeding 12-month period are recorded in other non-current assets and totaled $2.2 million and $1.1 million as of March 31, 2024, and December 31, 2023, respectively.

The Company performs ongoing credit evaluations of its customers’ financial condition. An allowance for credit losses is maintained for probable credit losses based upon the Company’s assessment of the expected collectibility of the accounts receivable. The allowance for credit losses is reviewed on a quarterly basis to assess the adequacy of the allowance.

Property and Equipment

Property and equipment, net consist of the following (in thousands):

March 31, 

December 31, 

    

2024

2023

Computer equipment

$

12,124

$

12,515

Software

 

5,599

 

5,596

Furniture, fixtures, and equipment

 

2,519

 

2,501

Leasehold improvements

 

6,463

 

6,475

Laboratory and other equipment

 

5,102

 

4,891

Test equipment

 

22,324

 

25,044

Property and equipment in progress:

 

 

DFI™ system assets

22,086

22,864

CV® system and other assets

 

7,192

 

6,977

 

83,409

 

86,863

Less: Accumulated depreciation and amortization

 

(47,321)

 

(49,525)

Total

$

36,088

$

37,338

Test equipment mainly includes DFI™ system and CV® system assets at customer sites that are contributing to revenue. Property and equipment in progress represent the development or construction of property and equipment that have not yet been placed in service for the Company’s intended use and are not depreciated. 

Depreciation and amortization expense was $1.1 million and $1.3 million during the three months ended March 31, 2024 and 2023, respectively.

14

Goodwill and Intangible Assets, Net

As of March 31, 2024, and December 31, 2023, the carrying amount of goodwill was $15.0 million and $15.0 million, respectively.

Intangible assets, net, consisted of the following (in thousands):

March 31, 2024

December 31, 2023

Amortization

Gross

Net

Gross

Net

Period

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

(Years)

    

Amount

    

Amortization

    

Amount

    

Amount

    

Amortization

    

Amount

Acquired identifiable intangibles:

Customer relationships

 

1-10

$

9,505

$

(7,500)

$

2,005

$

9,508

$

(7,335)

$

2,173

Developed technology

 

4-9

 

34,623

 

(22,723)

 

11,900

 

34,650

 

(22,094)

 

12,556

Tradename and trademarks

 

2-10

 

1,598

 

(1,052)

 

546

 

1,598

 

(1,025)

 

573

Patent

 

6-10

 

2,100

 

(1,804)

 

296

 

2,100

 

(1,782)

 

318

Noncompetition agreements

 

3

 

848

 

(848)

 

 

848

 

(848)

 

Total

$

48,674

$

(33,927)

$

14,747

$

48,704

$

(33,084)

$

15,620

The weighted average amortization period for acquired identifiable intangible assets was 5.0 years as of March 31, 2024. The following table summarizes intangible assets amortization expense in the accompanying condensed consolidated statements of comprehensive income (loss) (in thousands):

Three Months Ended March 31, 

    

2024

    

2023

Amortization of acquired technology included under costs of revenues

$

584

$

553

Amortization of acquired intangible assets presented separately under costs and expenses

 

259

 

325

Total amortization of acquired intangible assets

$

843

$

878

The Company expects annual amortization of acquired identifiable intangible assets to be as follows (in thousands):

Year Ending December 31, 

    

Amount

2024 (remaining nine months)

$

2,388

2025

 

3,068

2026

 

2,899

2027

 

2,746

2028

2,441

2029 and thereafter

 

1,205

Total future amortization expense

$

14,747

There were no impairment charges for goodwill and intangible assets during the three months ended March 31, 2024 and 2023.

15

Other Non-current Assets

Other non-current assets consisted of the following (in thousands):

March 31, 

December 31, 

    

2024

2023

Costs capitalized to obtain revenue contracts – non-current (1)

$

3,645

$

2,587

Unbilled accounts receivable – non-current (2)

2,248

1,069

Contract assets – non-current (1)

687

933

Net investments in sales-type leases – non-current (3)

20,035

12,196

Deposits and other non-current prepaid expenses

 

2,167

 

2,433

Total other non-current assets

$

28,782

$

19,218

(1)See Note 2, Revenue from Contracts with Customers.
(2)See Note 3, Balance Sheet Components – Accounts Receivable.
(3)The Company had net investments in sales-type leases for its DFI™ system and CV® system assets. The following table summarizes the components of the Company’s net investments in sales-type leases in the condensed consolidated balance sheets (in thousands):

March 31, 

December 31, 

    

2024

2023

Lease receivables

$

16,493

$

9,460

Unguaranteed residual assets

6,786

4,717

Net investments in sales-type leases

23,279

14,177

Less: Current portion of lease receivables under prepaid expenses and other current assets

(3,244)

(1,981)

Net investments in sales-type leases – non-current

 

$

20,035

$

12,196

Maturities of leases payments under sales-type leases as of March 31, 2024, were as follows (in thousands):

Year Ending December 31, 

    

Amount

2024 (remaining nine months)

$

3,211

2025

 

7,883

2026

 

7,519

2027

 

2,674

2028

 

68

Total future sales-type lease payments

21,355

Less: Present value adjustment (a)

 

(4,862)

Present value of lease receivables

$

16,493

(a)Calculated using the rate implicit in the lease determined for each lease.

There was no allowance for credit losses on lease receivables as of March 31, 2024, and December 31, 2023. The Company’s ongoing risk management strategy for residual assets includes performing regular reviews of estimated residual values.

16

4. LEASES

The Company leases administrative and sales offices and certain equipment under non-cancellable operating leases, which contain various renewal options and, in some cases, require payment of common area costs, taxes and utilities. These operating leases expire at various dates through 2028. The Company had no leases that were classified as a financing lease as of March 31, 2024, and December 31, 2023.

Lease expense was comprised of the following (in thousands):

Three Months Ended March 31, 

    

2024

    

2023

Operating lease expense

$

381

$

387

Short-term lease and variable lease expense (1)

 

214

 

228

Total lease expense

$

595

$

615

(1)Leases with an initial term of 12 months or less are not recorded on the accompanying condensed consolidated balance sheets, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease expense for the periods presented primarily included common area maintenance charges.

Supplemental condensed consolidated balance sheets information related to operating leases was as follows:

March 31, 

December 31, 

 

    

2024

2023

 

Weighted average remaining lease term under operating leases (in years)

4.1

4.4

Weighted average discount rate for operating lease liabilities

 

5.02

%  

4.96

%

Maturities of operating lease liabilities as of March 31, 2024, were as follows (in thousands):

Year Ending December 31, 

    

Amount (1)

2024 (remaining nine months)

$

1,315

2025

 

1,679

2026

 

1,373

2027

 

1,294

2028

 

929

2029

 

63

Total future minimum lease payments

6,653

Less: Interest (2)

 

(665)

Present value of future minimum lease payments under operating lease liabilities (3)

$

5,988

(1)As of March 31, 2024, the total operating lease liability includes approximately $1.0 million related to an option to extend a lease term that is reasonably certain to be exercised.
(2)Calculated using incremental borrowing interest rate for each lease.
(3)Includes the current portion of operating lease liabilities of $1.6 million as of March 31, 2024.

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5. STOCKHOLDERS’ EQUITY

Stock Repurchase Program

On April 11, 2022, the Board of Directors adopted a stock repurchase program (the “2022 Program”) to repurchase up to $35.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, from time to time, over the next two years. During the three months ended March 31, 2024, 201,561 shares were repurchased by the Company under the 2022 Program at an average price of $34.23 per share for an aggregate total price of $6.9 million. In total, the Company repurchased 937,501 shares under the 2022 Program at an average price of $25.96 per share for an aggregate total price of $24.3 million.

The 2022 Program expired on April 11, 2024, and on April 15, 2024, the Board of Directors adopted a new program (the “2024 Program”) to repurchase up to $40.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, from time to time, over the next two years.

6. EMPLOYEE BENEFIT PLANS

On March 31, 2024, the Company had the following stock-based compensation plans:

Employee Stock Purchase Plan

On June 15, 2021, the Company’s stockholders approved the 2021 Employee Stock Purchase Plan, which has a ten-year term (the “2021 Purchase Plan”). Under the 2021 Purchase Plan, eligible employees can contribute up to 10% of their compensation, as defined in the 2021 Purchase Plan, towards the purchase of shares of PDF common stock at a price of 85% of the lower of the fair market value at the beginning of the offering period or the end of the purchase period. The 2021 Purchase Plan commenced on August 1, 2021, and provided for twenty-four-month offering periods with four six-month purchase periods in each offering period.

On April 15, 2024, the Company’s Board of Directors approved another amendment and restatement of the 2021 Purchase Plan, which is subject to stockholder approval at the 2024 annual meeting of stockholders, to, among other things, increase the number of shares reserved for issuance under it to a total of 1.2 million shares, which is an increase of an additional 0.2 million shares, and to eliminate the term of the 2021 Purchase Plan.

The Company estimated the fair value of purchase rights granted under the 2021 Purchase Plan during the period using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions, resulting in the following weighted average fair values:

Three Months Ended March 31, 

2024

    

2023

Expected life (in years)

1.25

 

1.25

Volatility

41.40

%  

46.70

%  

Risk-free interest rate

4.62

%  

4.48

%  

Expected dividend

 

Weighted average fair value of purchase rights granted during the period

$

10.89

$

11.90

During the three months ended March 31, 2024, a total of 73,854 shares were issued under the 2021 Purchase Plan, at a weighted average purchase price of $25.94 per share. During the three months ended March 31, 2023, a total of 98,216 shares were issued under the 2021 Purchase Plan, at a weighted-average purchase price of $16.93

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per share. As of March 31, 2024, unrecognized compensation cost related to the 2021 Purchase Plan was $4.0 million. This estimated unrecognized cost is expected to be recognized over a weighted average period of 1.8 years.

As of March 31, 2024, 520,455 shares were available for future issuance under the 2021 Purchase Plan.

Stock Incentive Plans

On November 16, 2011, the Company’s stockholders initially approved the 2011 Stock Incentive Plan, which has been amended and restated and approved by the Company’s stockholders a number of times since then (as approved by the stockholders through the date of this report, the “2011 Plan”) and currently expires in 2033. Under the 2011 Plan, the Company may award stock options, stock appreciation rights (“SARs”), stock grants or stock units covering shares of the Company’s common stock to employees, directors, non-employee directors and contractors. The aggregate number of shares reserved for awards under the 2011 Plan is 13.8 million shares, plus up to 3.5 million shares previously issued under the 2001 Stock Plan adopted by the Company in 2001, which expired in 2011 (the “2001 Plan”) that are either (i) forfeited or (ii) repurchased by the Company or are shares subject to awards previously issued under the 2001 Plan that expire or that terminate without having been exercised or settled in full on or after November 16, 2011. In case of awards other than options or SARs, the aggregate number of shares reserved under the 2011 Plan will be decreased at a rate of 1.33 shares issued pursuant to such awards. The exercise price for stock options must generally be at prices no less than the fair market value at the date of grant. Stock options generally expire ten years from the date of grant and become vested and exercisable over a four-year period.

On April 15, 2024, the Company’s Board of Directors approved another amendment and restatement of the 2011 Plan, which is subject to stockholder approval at the 2024 annual meeting of stockholders, to, among other things, increase the number of shares reserved for awards under it to a total of 14.6 million shares, which is an increase of an additional 0.8 million shares, and to eliminate the term of the 2011 Plan.

As of March 31, 2024, 14.3 million shares of common stock were reserved to cover stock-based awards under the 2011 Plan, of which 3.7 million shares were available for future grant. The number of shares reserved and available under the 2011 Plan includes 0.5 million shares that were subject to awards previously made under the 2001 Plan and were forfeited, expired or repurchased by the Company after the adoption of the 2011 Plan through March 31, 2024. As of March 31, 2024, there were no outstanding awards that had been granted outside of the 2011 or 2001 Plans (collectively, the “Stock Plans”).

The Company estimated the fair value of share-based awards granted under the 2011 Stock Plan during the period using the Black-Scholes-Merton option-pricing model. There were no stock options granted during the three months ended March 31, 2024 and 2023.

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