10-Q 1 pdfs-20220331x10q.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, 2022

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 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 36,956,426 shares of the Registrant’s Common Stock outstanding as of May 6, 2022.

TABLE OF CONTENTS

 

    

Page

PART I   FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Comprehensive 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

25

Item 3. Quantitative and Qualitative Disclosures About Market Risk

36

Item 4. Controls and Procedures

36

PART II  OTHER INFORMATION

Item 1. Legal Proceedings

37

Item 1A. Risk Factors

37

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

37

Item 3. Defaults Upon Senior Securities

38

Item 4. Mine Safety Disclosures

38

Item 5. Other Information

38

Item 6. Exhibits

39

INDEX TO EXHIBITS

39

SIGNATURES

40

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, 

    

2022

    

2021

    

ASSETS

 

  

 

  

 

Current assets:

 

  

 

  

 

Cash and cash equivalents

$

35,799

$

27,684

Short-term investments

 

98,443

 

112,542

Accounts receivable, net of allowance for doubtful accounts of $902 and $890 in 2022 and 2021, respectively

 

37,753

 

40,087

Prepaid expenses and other current assets

 

8,857

 

8,194

Total current assets

 

180,852

 

188,507

Property and equipment, net

 

36,844

 

35,295

Operating lease right-of-use assets, net

 

4,479

 

5,408

Goodwill

 

14,123

 

14,123

Intangible assets, net

 

20,372

 

21,239

Deferred tax assets, net

 

67

 

75

Other non-current assets

 

8,840

 

9,121

Total assets

$

265,577

$

273,768

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

4,053

$

5,554

Accrued compensation and related benefits

 

8,576

 

9,495

Accrued and other current liabilities

 

4,602

 

3,328

Operating lease liabilities – current portion

 

1,225

 

1,758

Deferred revenues – current portion

 

23,868

 

23,691

Billings in excess of recognized revenues

 

245

 

Total current liabilities

 

42,569

 

43,826

Long-term income taxes payable

 

2,666

 

2,656

Non-current operating lease liabilities

 

4,741

 

5,258

Other non-current liabilities

 

2,034

 

2,443

Total liabilities

 

52,010

 

54,183

Commitments and contingencies (Note 12)

 

  

 

  

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 47,929 and 47,414, respectively; shares outstanding 37,594 and 37,411, respectively

 

6

 

6

Additional paid-in-capital

 

430,799

 

423,069

Treasury stock at cost, 10,335 and 10,003 shares, respectively

 

(113,872)

 

(104,705)

Accumulated deficit

 

(101,871)

 

(97,721)

Accumulated other comprehensive loss

 

(1,495)

 

(1,064)

Total stockholders’ equity

 

213,567

 

219,585

Total liabilities and stockholders’ equity

$

265,577

$

273,768

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

3

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

(in thousands, except per share amounts)

Three Months Ended March 31, 

    

2022

  

2021

Revenues:

 

  

 

  

Analytics

$

30,426

$

19,393

Integrated Yield Ramp

 

3,072

 

4,807

Total revenues

 

33,498

 

24,200

Costs and Expenses:

 

  

 

  

Costs of revenues

 

11,529

 

10,663

Research and development

 

14,089

 

10,841

Selling, general and administrative

 

10,839

 

9,464

Amortization of acquired intangible assets

 

314

 

314

Interest and other expense (income), net

 

(310)

 

(441)

Loss before income taxes

 

(2,963)

 

(6,641)

Income tax expense

 

1,187

 

956

Net loss

$

(4,150)

$

(7,597)

Other comprehensive loss:

 

  

 

  

Foreign currency translation adjustments, net of tax

(397)

(530)

Change in unrealized losses related to available-for-sale debt securities, net of tax

 

(34)

 

2

Total other comprehensive income loss

(431)

(528)

Comprehensive loss

$

(4,581)

$

(8,125)

Net loss per share, basic and diluted

$

(0.11)

$

(0.21)

Weighted average common shares used to calculate net loss per share, basic and diluted

 

37,606

 

36,974

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, 2022

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Treasury Stock

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Shares

    

Amount

    

Deficit

    

Loss

    

Equity

Balances, December 31, 2021

37,411

$

6

$

423,069

10,003

$

(104,705)

$

(97,721)

$

(1,064)

$

219,585

Issuance of common stock in connection with employee stock purchase plan

 

95

 

 

1,502

 

 

 

 

 

1,502

Issuance of common stock in connection with exercise of options

 

75

 

 

675

 

 

 

 

 

675

Vesting of restricted stock units

 

232

 

 

 

 

 

 

 

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

 

 

 

 

113

 

(3,389)

 

 

 

(3,389)

Repurchase of common stock

 

(219)

 

 

 

219

 

(5,778)

 

 

 

(5,778)

Stock-based compensation expense

 

 

 

5,553

 

 

 

 

 

5,553

Comprehensive loss

 

 

 

(4,150)

 

(431)

 

(4,581)

Balances, March 31, 2022

 

37,594

$

6

$

430,799

 

10,335

$

(113,872)

$

(101,871)

$

(1,495)

$

213,567

Three Months Ended March 31, 2021

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Treasury Stock

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Shares

    

Amount

    

Deficit

    

Loss

    

Equity

Balances, December 31, 2020

36,850

$

6

$

407,173

9,550

$

(96,215)

$

(76,233)

$

(225)

$

234,506

Issuance of common stock in connection with employee stock purchase plan

 

100

 

 

921

 

 

 

 

 

921

Issuance of common stock in connection with exercise of options

 

81

 

 

568

 

 

 

 

 

568

Vesting of restricted stock units

 

149

 

 

 

 

 

 

 

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

 

 

 

 

73

 

(1,463)

 

 

 

(1,463)

Repurchase of common stock

(251)

251

(4,523)

(4,523)

Stock-based compensation expense

 

 

 

3,369

 

 

 

 

 

3,369

Comprehensive loss

 

 

 

 

 

 

(7,597)

 

(528)

 

(8,125)

Balances, March 31, 2021

 

36,929

$

6

$

412,031

 

9,874

$

(102,201)

$

(83,830)

$

(753)

$

225,253

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, 

    

2022

    

2021

Cash flows from operating activities:

Net loss

$

(4,150)

$

(7,597)

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

 

 

  

Depreciation and amortization

 

1,380

 

1,718

Stock-based compensation expense

 

5,553

 

3,369

Amortization of acquired intangible assets

 

867

 

849

Amortization of costs capitalized to obtain revenue contracts

 

173

 

165

Loss on disposal and write-down in value of property and equipment

5

Deferred taxes

 

(11)

 

55

Other

 

37

 

(20)

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

2,296

 

(677)

Prepaid expenses and other current assets

 

(976)

 

2,839

Operating lease right-of-use assets

 

918

 

476

Other non-current assets

 

278

 

339

Accounts payable

 

(2,069)

 

(4,109)

Accrued compensation and related benefits

 

(864)

 

(2,059)

Accrued and other liabilities

 

582

 

(162)

Deferred revenues

 

(225)

 

(1,994)

Billings in excess of recognized revenues

 

245

 

(998)

Operating lease liabilities

 

(1,038)

 

(524)

Net cash provided by (used in) operating activities

 

2,996

 

(8,325)

Cash flows from investing activities:

Proceeds from maturities and sales of short-term investments

 

35,000

 

68,000

Purchases of short-term investments

(20,959)

(10,997)

Purchases of property and equipment

(1,765)

(586)

Net cash provided by investing activities

 

12,276

 

56,417

Cash flows from financing activities:

 

 

  

Proceeds from exercise of stock options

 

675

 

568

Proceeds from employee stock purchase plan

 

1,502

 

921

Payments for taxes related to net share settlement of equity awards

 

(3,389)

 

(1,463)

Repurchases of common stock

 

(5,778)

 

(4,523)

Net cash used in financing activities

 

(6,990)

 

(4,497)

Effect of exchange rate changes on cash and cash equivalents

 

(167)

 

(104)

Net change in cash, cash equivalents, and restricted cash

 

8,115

 

43,491

Cash, cash equivalents, and restricted cash at beginning of period

 

27,684

 

33,815

Cash, cash equivalents, and restricted cash at end of period

$

35,799

$

77,306

Reconciliation of cash, cash equivalents, and restricted cash to the balance sheets:

Cash and cash equivalents

$

35,799

$

74,287

Restricted cash

3,019

Total cash, cash equivalents, and restricted cash

$

35,799

$

77,306

Continued on next page.

6

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED

(unaudited)

(in thousands)

Three Months Ended March 31, 

    

2022

    

2021

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid during the period for taxes

$

1,254

$

530

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

$

430

$

651

Supplemental disclosure of noncash information:

 

 

  

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

$

1,923

$

181

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

$

120

$

Release of restricted cash reducing goodwill due to the acquisition purchase price adjustment

$

$

469

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 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 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The 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 condensed consolidated balance sheet at December 31, 2021, 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 generally accepted accounting principles in the United States (“U.S. GAAP”) 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 financial statements include revenue recognition, the estimated useful lives of property and equipment and intangible assets, assumptions made in analysis of allowance for doubtful accounts, fair values of assets acquired and liabilities assumed in business combinations, impairment of goodwill and long-lived assets, valuation for deferred tax assets, 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.

The global COVID-19 pandemic has impacted the operations and purchasing decisions of companies worldwide. As of the date of issuance of the condensed consolidated financial statements, the Company is not aware of any specific event or circumstance relating to COVID-19 that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial statements.

Recent Accounting Standards

Accounting Standards Adopted

Management has reviewed recently issued accounting pronouncements and has determined there are not any that would have a material impact on the condensed consolidated financial statements.

8

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model, which will result in earlier recognition of credit losses. Subsequent to the issuance of ASU No. 2016-13, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instrument, ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326) Targeted Transition Relief, ASU No. 2016-13, ASU No. 2019-10 Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and ASU No. 2019-11 Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The subsequent ASUs do not change the core principle of the guidance in ASU No. 2016-13. Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU No. 2016-13.

Additionally, ASU No. 2019-10 defers the effective date for the adoption of the new standard on credit losses for public filers that are considered small reporting companies (“SRC”) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which will be fiscal 2023 for the Company if it continues to be classified as an SRC. In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The subsequent amendments will have the same effective date and transition requirements as ASU No. 2016-13. Early adoption is permitted. Topic 326 requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. While the Company is currently evaluating the impact of Topic 326, the Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements or the related disclosure.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-20): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. Additionally, the ASU will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. The ASU will be effective for annual reporting periods beginning after December 15, 2023 for SRCs and interim periods within those annual periods. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its condensed consolidated financial statements or the 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 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

9

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 collectability 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), SaaS (which is primarily Exensio products), and DFI™ systems and CV® systems that do not include performance incentives based on customers’ yield achievement.

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 we are 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, we allocate 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 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, we allocate 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 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 judgement. Please refer to “Significant Judgments” section of this Note for further discussion.

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-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 judgement. Please refer to “Significant Judgments” section of this Note for further discussion.

The Gainshare royalty contained in IYR 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 royalty 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 by timing of revenue:

Three Months Ended March 31, 

 

    

2022

    

2021

Over time

70

%  

50

%

Point-in-time

 

30

%  

50

%

Total

 

100

%  

100

%

International revenues accounted for approximately 48% and 65% of our total revenues during the three months ended March 31, 2022 and March 31, 2021, respectively. See Note 10, 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.

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,

11

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, licenses software 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 royalty 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 generally classified as current and are recorded on a net basis with deferred revenue (i.e. contract liabilities) at the contract level. At March 31, 2022 and December 31, 2021, the total contract assets included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets $0.4 million and $0.4 million, respectively. The Company did not record any asset impairment charges related to contract assets for the periods presented.

Deferred revenues consist substantially of amounts invoiced in advance of revenue recognition and are recognized as the revenue recognition criteria are met. Deferred revenues that will be recognized during the succeeding twelve-month period are recorded as current deferred revenues and the remaining portion is recorded in the other non-current liabilities in the Condensed Consolidated Balance Sheets. At March 31, 2022 and December 31, 2021, the non-current portion of deferred revenues included in non-current liabilities was $2.0 million and $2.4 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 $6.9 million and $6.3 million during the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022, 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 $196.8 million. Given the applicable contract terms with customers, the majority of this amount is expected to be recognized as revenue over the next two years, with the remainder in the following three years. This amount does not include insignificant contracts to which the customer is not committed, nor significant contracts for which we recognize revenue equal to the amount we have 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

12

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 an increase of $0.2 million and a decrease $0.3 million during the three months ended March 31, 2022 and 2021, respectively. These amounts primarily represent changes in estimated percentage-of-completion based contracts and changes in actual versus estimated Gainshare royalty.

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, 2022, and December 31, 2021, were $0.9 million and $0.6 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, 2022, and December 31, 2021, were $2.1 million and $2.1 million, respectively. Amortization of these assets were $0.2 million and $0.2 million during the three months ended March 31, 2022 and 2021, 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, 2022 and 2021.

3. STRATEGIC PARTNERSHIP AGREEMENT WITH ADVANTEST AND RELATED PARTY TRANSACTIONS

On July 29, 2020, the Company entered into a long-term strategic partnership with Advantest Corporation through its wholly-owned subsidiary, Advantest America, Inc. (collectively referred to herein as “Advantest”) that included the following agreements.

A Securities Purchase Agreement for the purchase by Advantest of an aggregate of 3,306,924 shares of the Company’s common stock for aggregate gross proceeds of $65.2 million and a related Stockholder Agreement.
An Amendment #1 to that certain Software License and Related Services Agreement, dated as of March 25, 2020, for an exclusive commercial arrangement in which the Company and Advantest collaborate on, and the Company initially hosts, develops and maintains, an Advantest-specific cloud layer on the Exensio platform.
An Amended and Restated Master Development Agreement with Advantest, pursuant to which the Company and Advantest agreed to collaborate on extensions to or combinations of both of their existing technology and new technology to address mutual customers’ needs through one or more development phases subject to certain conditions as set forth therein. Costs and expenses incurred related to this agreement have not been significant for the three months ended March 31, 2022 and 2021.
A Master Commercial Terms and Support Services Agreement for the commercialization and support of integrated products of the Company and Advantest that are the outcome of the above development agreement. No material costs and expenses were incurred related to the Commercial Agreement with Advantest during the three months ended March 31, 2022 and 2021.

13

Analytics revenue recognized from Advantest was $2.6 million during the three months ended March 31, 2022 and $2.6 million during the three months ended March 31, 2021. There were no outstanding accounts receivable from Advantest as of March 31, 2022, and December 31, 2021, and deferred revenue amounted to $4.2 million and $6.8 million as of March 31, 2022 and December 31, 2021, respectively. There was no occurrence of any termination events under these agreements as of the issuance of these condensed consolidated financial statements.

The Company carries out transactions with Advantest on arm’s length commercial customary terms.

4. 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 $10.8 million and $11.8 million as of March 31, 2022, and December 31, 2021, respectively. Unbilled accounts receivable that are not expected to be billed and collected during the succeeding 12-month period is recorded in other non-current assets and totaled $1.3 million and $1.3 million as of March 31, 2022, and December 31, 2021, respectively.

The Company performs ongoing credit evaluations of its customers’ financial condition. An allowance for doubtful accounts is maintained for probable credit losses based upon the Company’s assessment of the expected collectability of the accounts receivable. The allowance for doubtful accounts 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, 

    

2022

    

2021

Computer equipment

$

11,887

$

11,924

Software

 

5,411

 

5,419

Furniture, fixtures and equipment

 

2,503

 

2,506

Leasehold improvements

 

6,266

 

6,272

Laboratory and other equipment

 

4,171

 

3,981

Test equipment

 

28,060

 

24,452

Construction-in-progress

 

21,263

 

22,158

 

79,561

 

76,712

Less: accumulated depreciation and amortization

 

(42,717)

 

(41,417)

Total

$

36,844

$

35,295

Test equipment includes DFI systems assets at customer sites that are contributing to revenue. The construction-in-progress balance related to construction of DFI™ systems assets totaled $18.5 million and $20.0 million as of March 31, 2022, and December 31, 2021, respectively. Depreciation and amortization expense was $1.4 million and $1.7 million during the three months ended March 31, 2022 and 2021, respectively.

In the fourth quarter of 2021, the Company wrote down the value of its property and equipment by $3.2 million related to its first-generation of e-beam tools for DFI™ systems wherein carrying values may not be fully recoverable due to lack of market demand and future needs of our customers for these tools.

Goodwill and Intangible Assets, Net

As of March 31, 2022, and December 31, 2021, the carrying amount of goodwill was $14.1 million.

14

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

March 31, 2022

December 31, 2021

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

$

9,407

$

(6,202)

$

3,205

$

9,407

$

(6,041)

$

3,366

Developed technology

 

4-9

 

33,635

 

(17,848)

 

15,787

 

33,635

 

(17,250)

 

16,385

Tradename and trademarks

 

2-10

 

1,598

 

(839)

 

759

 

1,598

 

(812)

 

786

Patent

 

7-10

 

1,800

 

(1,650)

 

150

 

1,800

 

(1,640)

 

160

Noncompetition agreements

 

3

 

848

 

(377)

 

471

 

848

 

(306)

 

542

Total

$

47,288

$

(26,916)

$

20,372

$

47,288

$

(26,049)

$

21,239

The weighted average amortization period for acquired identifiable intangible assets was 6.6 years as of March 31, 2022. The following table summarizes intangible assets amortization expense in the Condensed Consolidated Statements of Comprehensive Loss (in thousands):

Three Months Ended March 31, 

    

2022

    

2021

Amortization of acquired technology included under Costs of Revenues

$

553

$

535

Amortization of acquired intangible assets presented separately under Costs and Expenses

 

314

 

314

Total amortization of acquired intangible assets

$

867

$

849

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

Year Ending December 31, 

    

Amount

2022 (remaining nine months)

$

2,601

2023

 

3,444

2024

 

3,046

2025

 

2,882

2026

 

2,712

2027 and thereafter

 

5,687

Total future amortization expense

$

20,372

There were no impairment charges for goodwill and intangible assets during the three months ended March 31, 2022 or 2021.

5. 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, 2022, and December 31, 2021.

In the first quarter of 2022, the Company early terminated an office lease contract. The termination of this lease reduces the Company’s operating lease right-of-use assets and lease liabilities by approximately $0.5 million and $0.6 million, respectively. The gain from the lease termination of approximately $0.1 million was recorded under selling, general and administrative expense in the Condensed Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2022.

15

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

Three Months Ended March 31, 

    

2022

    

2021

Operating lease expense (1)

$

345

$

485

Short-term lease and variable lease expense (2)

 

283

 

174

Total lease expense

$

628

$

659

(1)Net of gain recognized upon lease termination of $0.1 million in three month ended March 31, 2022.
(2)Leases with an initial term of 12 months or less are not recorded on the 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 balance sheets information related to operating leases was as follows:

March 31, 

December 31, 

 

    

2022

    

2021

 

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

6.0

5.7

Weighted average discount rate for operating lease liabilities

 

5.25

%  

5.25

%

Maturities of operating lease liabilities as of March 31, 2022, were as follows (in thousands):

Year Ending December 31, 

    

Amount (1)

2022 (remaining nine months)

$

960

2023

 

1,137

2024

 

1,070

2025

 

1,086

2026

 

1,053

2027 and thereafter

1,650

Total future minimum lease payments

$

6,956

Less: Interest (2)

 

(990)

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

$

5,966

(1)As of March 31, 2022, the total operating lease liability includes approximately $1.1 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 $1.2 million as of March 31, 2022.

6. STOCKHOLDERS’ EQUITY

Stock Repurchase Program

On June 4, 2020, the Company’s Board of Directors adopted a stock repurchase program (the “2020 Program”) to repurchase up to $25.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, over the next two years. During the three months ended March 31, 2022, 218,858 shares were repurchased under the 2020 Program at an average price of $26.40 per share for an aggregate total price of $5.8 million. During the three months ended March 31, 2021, approximately 251,000 shares were repurchased under the 2020 Program at an average price of $18.01 per share for an aggregate total price of $4.5 million. Through March 31, 2022, approximately 470,000 shares had been repurchased at an average price of $21.91 per share, for a total price of $10.3 million under the 2020 Program.

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On April 11, 2022, the Board of Directors terminated that 2020 Program, and adopted a new 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, from time to time, over the next two years.

7. EMPLOYEE BENEFIT PLANS

On March 31, 2022, the Company had the following stock-based compensation plans:

Employee Stock Purchase Plan

In July 2001, the Company’s stockholders initially approved the 2001 Employee Stock Purchase Plan, which was subsequently amended and restated in 2010 (as amended, the “2010 Purchase Plan”) to extend the term of the plan through May 17, 2020. Under the 2010 Purchase Plan, eligible employees could contribute up to 10% of their compensation, as defined in the 2010 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 2010 Purchase Plan provided for twenty-four-month offering periods with four six-month purchase periods in each offering period. The 2010 Purchase Plan expired on May 17, 2020. Existing offering periods under the 2010 Plan continued through the applicable expiration date and the final offering period expired on January 31, 2022. 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”). The terms of 2021 Purchase Plan are substantially similar to those of the 2010 Purchase Plan. A twenty-four-month offering period under the 2021 Purchase Plan commenced on August 1, 2021.

The Company estimated the fair value of purchase rights granted under the 2010 and the 2021 Purchase Plans 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:

2021 Purchase Plan

2010 Purchase Plan

Three Months Ended March 31, 

 

Three Months Ended March 31, 

 

2022

2021

Expected life (in years)

1.25

 

1.25

Volatility

48.90

%  

34.25

%

Risk-free interest rate

0.86

%  

1.43

%

Expected dividend

 

Weighted average fair value of purchase rights granted during the period

$

10.76

$

4.83

During the three months ended March 31, 2022, a total of approximately 95,243 shares were issued at a weighted-average purchase price of $15.77 per share. During the three months ended March 31, 2021, a total of approximately 99,674 shares were issued at a weighted-average purchase price of $9.24 per share. As of March 31, 2022, unrecognized compensation cost related to the 2021 Purchase Plan was $1.9 million. These costs are expected to be recognized over a weighted average period of 1.4 years.

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 amended, the “2011 Plan”). 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 this plan is 11,550,000 shares, plus up to 3,500,000 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

17

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 26, 2022, the Company’s Board of Directors amended the 2011 Plan, subject to stockholder approval, to increase the number of shares reserved for awards under it to a total of 12,800,000 shares, which is an increase of an additional 1,250,000 shares.

As of March 31, 2022, 12.1 million shares of common stock were reserved to cover stock-based awards under the 2011 Plan, of which 3.2 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, 2022. As of March 31, 2022, 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, 2022 and 2021.

Stock-Based Compensation

Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally four years. Stock-based compensation expense before taxes related to the Company’s stock plans and employee stock purchase plan was allocated as follows (in thousands):

Three Months Ended March 31, 

    

2022

    

2021

Costs of revenues

$

728

$

652

Research and development

 

3,168

 

1,588

Selling, general and administrative

 

1,657

 

1,129

Stock-based compensation expenses

$

5,553

$

3,369

Additional information with respect to options under the Stock Plans during the three months ended March 31, 2022, is as follows:

Outstanding Options

Weighted

Weighted

Average

Average

Remaining

Aggregate

Number of

Exercise

Contractual

Intrinsic

Options

Price

Term

Value

    

(in thousands)

    

per Share

    

(Years)

    

(in thousands)

Outstanding, January 1, 2022

 

226

$

12.78

 

  

 

  

Granted

 

 

  

 

  

Exercised

 

(75)

9.06

 

  

 

  

Canceled

 

(3)

13.57

 

  

 

  

Expired

 

 

  

 

  

Outstanding, March 31, 2022

 

148

$

14.64

 

4.19

$

1,954

Vested and expected to vest, March 31, 2022

 

146

$

14.63

 

4.15

$

1,936

Exercisable, March 31, 2022

 

121

$

14.54

 

3.45

$

1,612

The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of $27.87 per share as of March 31, 2022. The total intrinsic value of options exercised was $1.3 million during the three months ended March 31, 2022.

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As of March 31, 2022, there was $0.1 million of total unrecognized compensation cost, net of forfeiture, related to unvested stock options, which is expected to be recognized over a weighted average period of 1.5 years. The total fair value of shares vested was immaterial during the three months ended March 31, 2022.

Nonvested restricted stock unit activity during the three months ended March 31, 2022, was as follows:

Weighted

Average Grant

Shares 

Date Fair Value

    

(in thousands)

    

Per Share

Nonvested, January 1, 2022

 

1,872

$

18.24

Granted

 

275

$