PDF SOLUTIONS INC [PDFS] Filings

10-Q 1 pdfs-20240930x10q.htm 10-Q

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 September 30, 2024


☐	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 38,772,864 shares of the Registrant’s Common Stock outstanding as of November 1, 2024.

Table of Contents

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		7
Notes to Condensed Consolidated Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3. Quantitative and Qualitative Disclosures About Market Risk		46
Item 4. Controls and Procedures		46
PART II OTHER INFORMATION
Item 1. Legal Proceedings		47
Item 1A. Risk Factors		47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 3. Defaults Upon Senior Securities		48
Item 4. Mine Safety Disclosures		48
Item 5. Other Information		48
Item 6. Exhibits		48
INDEX TO EXHIBITS		48
SIGNATURES		49

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except par value)


	September 30,		December 31,
	2024		2023
ASSETS
Current assets:
Cash and cash equivalents	$	96,428	$	98,978
Short-term investments		23,724		36,544
Accounts receivable, net of allowance for credit losses of $890 as of September 30, 2024, and December 31, 2023		46,668		44,904
Prepaid expenses and other current assets		24,575		17,422
Total current assets		191,395		197,848
Property and equipment, net		46,019		37,338
Operating lease right-of-use assets, net		4,360		4,926
Goodwill		15,011		15,029
Intangible assets, net		13,133		15,620
Deferred tax assets, net		173		157
Other non-current assets		37,260		19,218
Total assets	$	307,351	$	290,136

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,504	$	2,561
Accrued compensation and related benefits		13,191		14,800
Accrued and other current liabilities		6,510		4,633
Operating lease liabilities – current portion		1,706		1,529
Deferred revenues – current portion		28,728		25,750
Billings in excess of recognized revenues		91		1,570
Total current liabilities		57,730		50,843
Long-term income taxes		2,883		2,972
Non-current portion of operating lease liabilities		3,870		4,657
Other non-current liabilities		2,404		2,718
Total liabilities		66,887		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 50,668 and 49,749, respectively; shares outstanding 38,763 and 38,289, respectively		6		6
Additional paid-in capital		496,255		473,295
Treasury stock, at cost, 11,905 and 11,460 shares, respectively		(159,018)		(143,923)
Accumulated deficit		(94,527)		(98,045)
Accumulated other comprehensive loss		(2,252)		(2,387)
Total stockholders’ equity		240,464		228,946
Total liabilities and stockholders’ equity	$	307,351	$	290,136

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

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PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenues:
Analytics	$	44,750	$	39,497	$	121,327	$	112,957
Integrated Yield Ramp		1,659		2,853		8,053		11,753
Total revenues		46,409		42,350		129,380		124,710

Costs and Expenses:
Costs of revenues		12,484		14,282		38,243		38,555
Research and development		13,516		13,113		39,149		38,428
Selling, general, and administrative		18,094		15,611		50,851		46,022
Amortization of acquired intangible assets		196		328		714		979
Interest and other expense (income), net		(1,511)		(2,018)		(4,682)		(4,000)
Income before income tax expense		3,630		1,034		5,105		4,726
Income tax expense		(1,424)		(6,006)		(1,587)		(2,508)
Net income (loss)		2,206		(4,972)		3,518		2,218

Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax		975		(552)		123		(679)
Change in unrealized gain (loss) related to available-for-sale debt securities, net of tax		28		(5)		12		2
Total other comprehensive (income) loss		1,003		(557)		135		(677)
Comprehensive income (loss)	$	3,209	$	(5,529)	$	3,653	$	1,541

Net income (loss) per share:
Basic	$	0.06	$	(0.13)	$	0.09	$	0.06
Diluted	$	0.06	$	(0.13)	$	0.09	$	0.06

Weighted average common shares used to calculate net income (loss) per share:
Basic		38,710		38,187		38,542		37,930
Diluted		39,105		38,187		39,028		38,977

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

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PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands)


	Three-Month Periods in the Nine Months Ended September 30, 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
Issuance of common stock in connection with exercise of options	4		—		67	—		—		—		—		67
Vesting of restricted stock units	34		—		—	—		—		—		—		—
Purchases of treasury stock in connection with tax withholdings on restricted stock awards	—		—		—	13		(468)		—		—		(468)
Stock-based compensation expense	—		—		5,762	—		—		—		—		5,762
Comprehensive income (loss)	—		—		—	—		—		1,705		(326)		1,379
Balances, June 30, 2024	38,431		6		487,219	11,793		(155,084)		(96,733)		(3,255)		232,153
Issuance of common stock in connection with employee stock purchase plan	82		—		2,157	—		—		—		—		2,157
Issuance of common stock in connection with exercise of options	2		—		22	—		—		—		—		22
Vesting of restricted stock units	248		—		—	—		—		—		—		—
Purchases of treasury stock in connection with tax withholdings on restricted stock grants	—		—		—	112		(3,934)		—		—		(3,934)
Stock-based compensation expense	—		—		6,857	—		—		—		—		6,857
Comprehensive income	—		—		—	—		—		2,206		1,003		3,209
Balances, September 30, 2024	38,763	$	6	$	496,255	11,905	$	(159,018)	$	(94,527)	$	(2,252)	$	240,464

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PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - CONTINUED

(Unaudited)

(in thousands)


	Three-Month Periods in the Nine Months Ended September 30, 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
Issuance of common stock in connection with exercise of options	6		—		87	—		—		—		—		87
Vesting of restricted stock units	37		—		—	—		—		—		—		—
Purchases of treasury stock in connection with tax withholdings on restricted stock awards	—		—		—	11		(468)		—		—		(468)
Stock-based compensation expense	—		—		4,678	—		—		—		—		4,678
Comprehensive income (loss)	—		—		—	—		—		6,835		(387)		6,448
Balances, June 30, 2023	37,879		6		459,072	11,326		(138,278)		(93,960)	$	(2,670)		224,170
Issuance of common stock in connection with employee stock purchase plan	125		—		2,169	—		—		—		—		2,169
Issuance of common stock in connection with exercise of options	2		—		37	—		—		—		—		37
Vesting of restricted stock units	260		—		—	—		—		—		—		—
Purchases of treasury stock in connection with tax withholdings on restricted stock grants	—		—		—	102		(4,566)		—		—		(4,566)
Repurchase of common stock	(21)		—		—	21		(743)		—		—		(743)
Stock-based compensation expense	—		—		6,026	—		—		—		—		6,026
Comprehensive loss	—		—		—	—		—		(4,972)		(557)		(5,529)
Balances, September 30, 2023	38,245	$	6	$	467,304	11,449	$	(143,587)	$	(98,932)	$	(3,227)	$	221,564

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

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PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities:
Net income	$	3,518	$	2,218
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,895		3,778
Stock-based compensation expense		18,540		15,561
Amortization of acquired intangible assets		2,466		2,659
Amortization of costs capitalized to obtain revenue contracts		1,941		1,494
Net accretion of discounts on short-term investments		(1,239)		(734)
Accretion of unguaranteed residual assets		(488)		(51)
Deferred taxes		(35)		43
Other		(68)		(55)
Changes in operating assets and liabilities:
Accounts receivable		(1,743)		1,185
Prepaid expenses and other current assets		(8,831)		(7,038)
Operating lease right-of-use assets		1,241		904
Other non-current assets		(11,478)		(928)
Accounts payable		2,995		(2,697)
Accrued compensation and related benefits		(1,608)		(5,342)
Accrued and other liabilities		(16)		393
Deferred revenues		2,771		3,681
Billings in excess of recognized revenues		(1,479)		(1,612)
Operating lease liabilities		(1,285)		(888)
Net cash provided by operating activities		8,097		12,571

Cash flows from investing activities:
Proceeds from maturities and sales of short-term investments		57,125		28,800
Purchases of short-term investments		(43,054)		(32,250)
Purchase of convertible promissory note		(2,000)		—
Proceeds from sale of property and equipment		55		105
Purchases of property and equipment		(11,573)		(8,574)
Prepayment for the purchase of property and equipment		(365)		(343)
Purchases of intangible assets		—		(150)
Payment for business acquisition, net of cash acquired		—		(1,823)
Net cash provided by (used in) investing activities		188		(14,235)

Cash flows from financing activities:
Proceeds from exercise of stock options		114		469
Proceeds from employee stock purchase plan		4,073		3,832
Payments for taxes related to net share settlement of equity awards		(8,196)		(9,135)
Repurchases of common stock		(6,899)		(743)
Net cash used in financing activities		(10,908)		(5,577)

Effect of exchange rate changes on cash and cash equivalents		73		(763)
Net change in cash and cash equivalents		(2,550)		(8,004)
Cash and cash equivalents at beginning of period		98,978		119,624
Cash and cash equivalents at end of period	$	96,428	$	111,620

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PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED

(Unaudited)

(in thousands)


	Nine Months Ended September 30,
	2024		2023
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes	$	2,064	$	3,568
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,290	$	1,160

Supplemental disclosure of noncash information:
Property and equipment received and accrued in accounts payable and accrued and other current liabilities	$	4,774	$	697
Advances for purchase of property and equipment transferred from prepaid assets to property and equipment	$	89	$	66
Operating lease liabilities arising from obtaining right-of-use assets	$	679	$	—
Property and equipment transferred to sales-type leases	$	4,021	$	6,002
Stock-based compensation capitalized as part of the cost of property and equipment, net	$	233	$	—

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited)

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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, fair value of convertible note receivable, 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 and related disclosures.

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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 unaudited consolidated financial statements.

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

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.

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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 unaudited 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 unaudited condensed consolidated balance sheets.

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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 the 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 September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Over time	64	%	68	%	67	%	74	%
Point-in-time	36	%	32	%	33	%	26	%
Total	100	%	100	%	100	%	100	%

International revenues accounted for approximately 55% and 42% of the Company’s total revenues during the three months ended September 30, 2024 and 2023, respectively, and approximately 55% and 44% of the Company’s total revenues during the nine months ended September 30, 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.

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For revenue under project-based contracts for fixed-price 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 the SSPs for each performance obligation. In instances where the 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 primarily 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.

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The contract assets are recorded on a net basis with deferred revenue (i.e., contract liabilities) at the contract level. The contract assets consist of the following (in thousands):


	September 30,		December 31,
	2024		2023
Current portion included in prepaid expenses and other current assets	$	9,193	$	6,787
Non-current portion included in other non-current assets		611		933
Total contract assets	$	9,804	$	7,720

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