UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the Quarterly Period ended |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the transition period from _______________ to ______________ |
Commission File Number
(Exact name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) | (Zip Code) |
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(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 |
The |
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.
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).
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.
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
There were
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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)
March 31, | December 31, | |||||
| 2025 |
| 2024 | |||
ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Short-term investments |
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Accounts receivable, net of allowance for credit losses |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets, net |
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Goodwill |
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Intangible assets, net |
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Deferred tax assets, net |
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Other non-current assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued compensation and related benefits |
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Accrued and other current liabilities |
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Operating lease liabilities – current portion |
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Deferred revenues – current portion |
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Current portion of long-term debt, net | | — | ||||
Total current liabilities |
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Long-term income taxes |
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Non-current portion of operating lease liabilities |
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Long-term debt, net | | — | ||||
Other non-current liabilities |
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Total liabilities |
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Commitments and contingencies (Note 11) |
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Stockholders’ equity: |
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Preferred stock, $ | ||||||
Common stock, $ |
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Additional paid-in capital |
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Treasury stock, at cost, |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | | ||
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, | ||||||
| 2025 |
| 2024 | |||
Revenues: |
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Analytics | $ | | $ | | ||
Integrated Yield Ramp |
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Total revenues |
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Costs and Expenses: |
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Costs of revenues |
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Research and development |
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Selling, general, and administrative |
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Amortization of acquired intangible assets |
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Loss from operations | ( | ( | ||||
Interest expense | ( | — | ||||
Other income (expense), net |
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Loss before income tax expense |
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Income tax expense |
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Net loss | ( | ( | ||||
Other comprehensive loss: |
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Foreign currency translation adjustments, net of tax | | ( | ||||
Change in unrealized loss related to available-for-sale debt securities, net of tax |
| ( |
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Total other comprehensive income (loss) | | ( | ||||
Comprehensive loss | $ | ( | $ | ( | ||
Net loss per share: | ||||||
Basic | $ | ( | $ | ( | ||
Diluted | $ | ( | $ | ( | ||
Weighted average common shares used to calculate net loss per share: |
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Basic |
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Diluted |
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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, 2025 | ||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||
Common Stock | Paid-In | Treasury Stock | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||
| Shares |
| Amount |
| Capital |
| Shares |
| Amount |
| Deficit |
| Loss |
| Equity | |||||||
Balances, December 31, 2024 | | $ | | $ | |
| | $ | ( | $ | ( | $ | ( | $ | | |||||||
Issuance of common stock in connection with employee stock purchase plan |
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Issuance of common stock in connection with exercise of options |
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Vesting of restricted stock units |
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Purchases of treasury stock in connection with tax withholdings on restricted stock awards |
| — |
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Stock-based compensation expense |
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Comprehensive income (loss) |
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Balances, March 31, 2025 |
| | $ | | $ | |
| | $ | ( | $ | ( | $ | ( | $ | | ||||||
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 | | $ | | $ | |
| | $ | ( | $ | ( | $ | ( | $ | | |||||||
Repurchase of common stock | ( | — | — | | ( | — | — | ( | ||||||||||||||
Issuance of common stock in connection with employee stock purchase plan |
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Issuance of common stock in connection with exercise of options |
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Vesting of restricted stock units |
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Purchases of treasury stock in connection with tax withholdings on restricted stock awards |
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Stock-based compensation expense |
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Comprehensive loss |
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Balances, March 31, 2024 |
| | $ | | $ | |
| | $ | ( | $ | ( | $ | ( | $ | | ||||||
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, | ||||||
| 2025 |
| 2024 | |||
Cash flows from operating activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Stock-based compensation expense |
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Depreciation and amortization |
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Amortization of acquired intangible assets |
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Amortization of costs capitalized to obtain revenue contracts |
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Net accretion of discounts on short-term investments | ( | ( | ||||
Deferred taxes |
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Other |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Operating lease right-of-use assets |
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Other non-current assets |
| ( |
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Accounts payable |
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Accrued compensation and related benefits |
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Accrued and other liabilities |
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Deferred revenues |
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Operating lease liabilities |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities: | ||||||
Proceeds from maturities and sales of short-term investments |
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Purchases of short-term investments | ( | ( | ||||
Purchases of property and equipment | ( | ( | ||||
Prepayment for the purchase of property and equipment | ( | — | ||||
Payment for business acquisition, net of cash acquired | ( | — | ||||
Net cash used in investing activities |
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Cash flows from financing activities: |
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Proceeds from long-term debt, net of payment of debt financing costs | | — | ||||
Proceeds from exercise of stock options |
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Proceeds from employee stock purchase plan |
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Payments for taxes related to net share settlement of equity awards |
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Repurchases of common stock |
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Net cash provided by (used in) financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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Net change in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ | | $ | | ||
Continued on next page.
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PDF SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
(Unaudited)
(in thousands)
Three Months Ended March 31, | ||||||
2025 |
| 2024 | ||||
Supplemental disclosure of cash flow information: | ||||||
Cash paid during the year for income taxes | $ | | $ | | ||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | | $ | | ||
Supplemental disclosure of noncash information: | ||||||
Prepayments for purchase of property and equipment transferred from prepaid assets to property and equipment | $ | | $ | — | ||
Property and equipment received and accrued in accounts payable and accrued and other current liabilities | $ | | $ | | ||
Stock-based compensation capitalized as property and equipment | $ | | $ | | ||
Property and equipment transferred to sales-type leases | $ | — | $ | | ||
Operating lease liabilities arising from obtaining right-of-use assets | $ | — | $ | | ||
Debt financing costs included in accounts payable | $ | | $ | — | ||
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 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, 2024, filed with the SEC on February 27, 2025.
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 condensed consolidated balance sheet as of December 31, 2024 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.
Reclassification of Prior Period Amount
Certain immaterial prior period amounts on the condensed consolidated balance sheet and condensed consolidated statements of cash flows have been reclassified to conform with current period presentation.
Recent Accounting Standards
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.” This ASU may be applied 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.
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In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires the disaggregation of certain expenses in the notes to the consolidated financial statements, to provide enhanced transparency into the expense captions presented on the face of the income statement. This ASU is effective on a prospective basis for fiscal years beginning after December 15, 2026 and for interim periods beginning after December 15, 2027, with early adoption permitted. This ASU may be applied either prospectively or retrospectively. 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
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 includes secureWISE® products and services), and Design-for-Inspection™ (“DFI™”) systems and Characterization Vehicle® (“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 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-
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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 software product or service over a contractually determined period of time without the customer having to take possession of the software, e.g., cloud-based or via a network of secureWISE servers, 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 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 condensed consolidated balance sheets.
The Company generates revenue from the sale of DFI system products. Revenue is recognized at a point in time when the Company’s performance obligations have been completed, and the customer has accepted the product.
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.
10
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, |
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| 2025 |
| 2024 | ||
Over time | | % | | % | |
Point-in-time |
| | % | | % |
Total |
| | % | | % |
International revenues accounted for approximately
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 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 is required to estimate the range of the SSPs for each performance obligation and 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.
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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.
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):
March 31, | December 31, | |||||
| 2025 | 2024 | ||||
Current (included in Prepaid expenses and other current assets) | $ | | $ | | ||
Non-current (included in Other non-current assets) |
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Total contract assets | $ | | $ | | ||
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 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 condensed consolidated balance sheets.
Deferred revenues were the following (in thousands):
March 31, | December 31, | |||||
| 2025 | 2024 | ||||
Current | $ | | $ | | ||
Non-current (included in Other non-current liabilities) | | | ||||
Total deferred revenues | $ | | $ | | ||
Additional information related to deferred revenue were as follows (in thousands):
Three Months Ended March 31, | ||||||
| 2025 |
| 2024 | |||
Revenue recognized that was included in the deferred revenues and billings in excess of recognized revenues balances at the beginning of each year | $ | | $ | | ||
12
As of March 31, 2025, 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 $
The adjustment to revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods was an increase of $
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 and related fees were the following (in thousands):
March 31, | December 31, | |||||
| 2025 | 2024 | ||||
Current (included in Prepaid expenses and other current assets) | $ | | $ | | ||
Non-current (included in Other non-current assets) |
| |
| | ||
Total capitalized direct sales commission costs | $ | | $ | | ||
Amortization of capitalized direct sales commission costs was the following (in thousands):
Three Months Ended March 31, | ||||||
| 2025 |
| 2024 | |||
Amortization of capitalized direct sales commission costs | $ | | $ | | ||
There was
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
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 $
13
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. The allowance for credit losses was $
Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following (in thousands):
March 31, | December 31, | |||||
| 2025 |
| 2024 | |||
Prepaid expense | $ | | $ | | ||
Contract assets | | | ||||
Costs capitalized to obtain revenue contracts |
| |
| | ||
Net investments in sales-type leases - current portion |
| |
| | ||
Income tax receivable |
| |
| | ||
Total prepaid expenses and other current assets | $ | | $ | | ||
Property and Equipment
Property and equipment, net consist of the following (in thousands):
March 31, | December 31, | |||||
| 2025 |
| 2024 | |||
Computer equipment | $ | | $ | | ||
Software and capitalized software development cost |
| |
| | ||
Furniture, fixtures, and equipment |
| |
| | ||
Leasehold improvements |
| |
| | ||
Laboratory and other equipment |
| |
| | ||
Test equipment |
| |
| | ||
Property and equipment in progress: |
|
| ||||
DFI system assets | | | ||||
CV system and other assets |
| |
| | ||
Total property and equipment |
| |
| | ||
Less: Accumulated depreciation and amortization |
| ( |
| ( | ||
Total property and equipment, net | $ | | $ | | ||
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 $
Goodwill and Intangible Assets, Net
The following table summarizes goodwill transactions for the periods presented (in thousands):
Three Months Ended March 31, | ||||||
2025 |
| 2024 | ||||
Balance at beginning of the period | $ | | $ | | ||
Addition | | — | ||||
Foreign currency translation adjustment | | ( | ||||
Balance at end of the period | $ | | $ | | ||
14
The Company completed the acquisition of SecureWise LLC (“SecureWise”) on March 7, 2025. See Note 14, “Business Combination” for additional information related to the goodwill and intangible assets added from this acquisition.
Intangible assets, net, consisted of the following (in thousands):
March 31, 2025 | December 31, 2024 | |||||||||||||||||||
Amortization | Gross | Net | Gross | Net | ||||||||||||||||
Period | Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||
(Years) |
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | ||||||||
Acquired intangible assets: | ||||||||||||||||||||
Customer relationships |
| $ | | $ | ( | $ | | $ | | $ | ( | $ | | |||||||
Developed technology |
|
| |
| ( |
| |
| |
| ( |
| | |||||||
Tradename and trademarks |
|
| |
| ( |
| |
| |
| ( |
| | |||||||
Patent |
|
| |
| ( |
| |
| |
| ( |
| | |||||||
Noncompetition agreements |
|
| |
| ( |
| — |
| |
| ( |
| — | |||||||
Total | $ | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||||
The weighted average amortization period for acquired identifiable intangible assets was
Three Months Ended March 31, | ||||||
| 2025 |
| 2024 | |||
Amortization of acquired technology (included in costs of revenues) | $ | | $ | | ||
Amortization of acquired intangible assets (presented separately under costs and expenses) |
| |
| | ||
Total amortization of acquired intangible assets | $ | | $ | | ||
The estimated future amortization of acquired identifiable intangible assets as follows (in thousands):
Year Ending December 31, |
| Amount | |
2025 (remaining nine months) | $ | | |
2026 |
| | |
2027 |
| | |
2028 |
| | |
2029 | | ||
2030 and thereafter |
| | |
Total future amortization expense | $ | | |
There was no for goodwill and intangible assets during the three months ended March 31, 2025 and 2024.
15
Other Non-current Assets
Other non-current assets consisted of the following (in thousands):
March 31, | December 31, | |||||
| 2025 |
| 2024 | |||
Net investments in sales-type leases (3) | $ | | $ | | ||
Unbilled accounts receivable (2) | | | ||||
Costs capitalized to obtain revenue contracts (1) | | | ||||
Contract assets (1) | | | ||||
Other |
| |
| | ||
Total other non-current assets | $ | | $ | | ||
| (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, | |||||
| 2025 |
| 2024 | |||
Present value of lease receivables | $ | | $ | | ||
Less: Contract liability | — | ( | ||||
Net lease receivables | | | ||||
Unguaranteed residual assets | | | ||||
Total net investments in sales-type leases | $ | | $ | | ||
Reported as: | ||||||
Current (included in Prepaid expenses and other current assets) | $ | | $ | | ||
Non-current (included in Other non-current assets) | | | ||||
Total net investments in sales-type leases |
| $ | | $ | | |
Maturities of leases payments under sales-type leases as of March 31, 2025, were as follows (in thousands):
Year Ending December 31, |
| Amount | |
2025 (remaining nine months) | $ | | |
2026 |
| | |
2027 |
| | |
2028 |
| | |
Total future sales-type lease payments | | ||
Less: Present value adjustment (a) |
| ( | |
Present value of lease receivables | $ | | |
| (a) | Calculated using the rate implicit in the lease determined for each lease. |
There was
16
4. LEASES
The Company leases administrative and sales offices and certain equipment under non-cancellable operating leases, which contain various renewal or termination 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
Lease expense was comprised of the following (in thousands):
Three Months Ended March 31, | ||||||
| 2025 |
| 2024 | |||
Operating lease expense | $ | | $ | | ||
Short-term lease and variable lease expense (1) |
| |
| | ||
Total lease expense | $ | | $ | | ||
| (1) | Leases with an initial term of |
Supplemental condensed consolidated balance sheets information related to operating leases was as follows:
March 31, | December 31, |
| |||||
| 2025 |
| 2024 |
| |||
Weighted average remaining lease term under operating leases (in years) | |||||||
Weighted average discount rate for operating lease liabilities |
| | % | | % | ||
Maturities of operating lease liabilities as of March 31, 2025 were as follows (in thousands):
Year Ending December 31, |
| Amount | |
2025 (remaining nine months) | $ | | |
2026 |
| | |
2027 |
| | |
2028 |
| | |
Total future minimum lease payments |
| | |
Less: Interest (1) |
|
| ( |
Present value of future minimum lease payments under operating lease liabilities | $ | | |
Reported as of March 31, 2025: | |||
Operating lease liabilities – current | $ | | |
Operating lease liabilities – non-current | | ||
Total operating lease liabilities | $ | | |
| (1) | Calculated using incremental borrowing interest rate for each lease. |
As of March 31, 2025, the Company had additional undiscounted future minimum payments of $
17
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 $
On April 15, 2024, the Board of Directors adopted a new stock repurchase program (the “2024 Program”) to repurchase up to $
6. EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan
On June 15, 2021, the Company’s stockholders initially approved the 2021 Employee Stock Purchase Plan, which has been amended and restated by the Board of Directors and approved by the Company’s stockholders since then (as amended through the date of this report, the “2021 Purchase Plan”).
Under the 2021 Purchase Plan, eligible employees can contribute up to
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, | ||||||||
| 2025 |
| 2024 | |||||
Expected life (in years) |
| |||||||
Volatility | | % | | % | ||||
Risk-free interest rate | | % | | % | ||||
Expected dividend |
| |||||||
Weighted average fair value of purchase rights granted during the year | $ | | $ | | ||||
During the three months ended March 31, 2025 and 2024, a total of
As of March 31, 2025,
Subsequently, on April 28, 2025, the Company’s Board of Directors approved an amendment and restatement of the 2021 Purchase Plan, which is subject to stockholder approval at the 2025 annual meeting of stockholders, to, among other things, increase the number of shares reserved for issuance for an additional
18
Stock Incentive Plan
On November 16, 2011, the Company’s stockholders initially approved the 2011 Stock Incentive Plan, which has been amended and restated by the Board of Directors and approved by the Company’s stockholders a number of times since then (as amended through the date of this report, 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 the 2011 Plan is
As of March 31, 2025,
Subsequently, on April 28, 2025, the Company’s Board of Directors approved an amendment and restatement of the 2011 Plan, which is subject to stockholder approval at the 2025 annual meeting of stockholders, to, among other things, increase the number of shares reserved for issuance for an additional
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
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
Three Months Ended March 31, | ||||||
| 2025 |
| 2024 | |||
Costs of revenues | $ | | $ | | ||
Research and development |
| |
| | ||
Selling, general, and administrative |
| |
| | ||
Total stock-based compensation expense | $ | | $ | | ||
19
Stock Award Activities
Restricted stock unit (“RSU”)
Nonvested RSU activities were as follows:
Weighted | |||||
Average Grant | |||||
Shares | Date Fair Value | ||||
| (in thousands) |
| Per Share | ||
Nonvested, January 1, 2025 |
| | $ | | |
Granted |
| | | ||
Vested |
| ( | | ||
Forfeited |
| ( | | ||
Nonvested, March 31, 2025 |
| | $ | | |
The weighted average grant date fair values of RSUs granted during the three months ended March 31, 2025 and 2024 were $
The total fair value of RSUs vested were as follows (in thousands):
Three Months Ended March 31, | ||||||
| 2025 |
| 2024 | |||
Fair value of restricted stock units vested |
| $ | |
| $ | |
As of March 31, 2025, there was $
Stock Options
As of March 31, 2025, the outstanding stock options totaled
7. INCOME TAXES
Income tax expense decreased by $
The Company’s total amount of unrecognized tax benefits, excluding interest, as of March 31, 2025, was $
The valuation allowance was approximately $
20
The Company conducts business globally and, as a result, files numerous consolidated and separate income tax returns in the U.S. federal and various state and foreign jurisdictions. For U.S. federal and California income tax purposes, the statute of limitations currently remains open for the tax years ended 2021 to present and 2020 to present, respectively. In addition, all of the net operating loss and research and development credit carryforwards that may be utilized in future years may be subject to federal and state examination. The Company is not currently under known income tax examinations in the U.S. or any other of its major foreign subsidiaries’ jurisdictions.
8. NET LOSS PER SHARE
Three Months Ended March 31, | ||||||
| 2025 |
| 2024 | |||
Numerator: |
|
|
|
| ||
Net loss | $ | ( | $ | ( | ||
Denominator: |
|
|
|
| ||
Basic weighted average common shares outstanding |
| |
| | ||
Effect of dilutive stock options, unvested restricted stock units, and shares of common stock expected to be issued under employee stock purchase plan |
| — |
| — | ||
Diluted weighted average common shares outstanding |
| |
| | ||
Net loss per share: | ||||||
Basic | $ | ( | $ | ( | ||
Diluted | $ | ( | $ | ( | ||
For the three months ended March 31, 2025 and 2024, because the Company was in a loss position, diluted net loss per share is the same as basic net loss per share as the inclusion of the potential common shares would have been anti-dilutive.
The following table summarizes the potential shares of common stock that were not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):
Three Months Ended March 31, | ||||
| 2025 |
| 2024 | |
Non-vested restricted stock units |
| | | |
Outstanding stock options |
| | | |
Shares issuable under employee stock purchase plan |
| | | |
Total |
| |
| |
9. CUSTOMER AND GEOGRAPHIC INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in deciding how to allocate resources and in assessing performance.
21
The Company’s chief operating decision maker (“CODM”), the Chief Executive Officer, reviews discrete financial information including total revenues, gross profit, and net income (loss) presented on a consolidated basis for purposes of regularly making operating decisions about allocation of resources and financial performance assessment. Further, the CODM reviews and utilizes functional expenses (costs of revenues, research and development, and selling, general and administrative) at the consolidated level to manage the Company’s operations. Other segment items included in the condensed consolidated net income (loss) are amortization of acquired intangible assets, interest expense, other income (expense), net and income tax expense, which are reflected in the condensed consolidated statements of comprehensive income (loss). Accordingly, the Company considers itself as one operating and reporting segment because it does not distinguish between markets, specifically the provision of services for differentiated data and analytics solutions to the semiconductor and electronics industries.
The following table presents segment total revenues, costs of revenues, gross profit, and net loss for the periods presented (in thousands):
Three Months Ended March 31, | ||||||
| 2025 |
| 2024 | |||
Total revenues |
| $ | |
| $ | |
Costs of revenues | $ | |
| $ | | |
Gross profit | $ | |
| $ | | |
Net loss | $ | ( | $ | ( | ||
Revenues from an individual customer that are approximately 10% or more of the Company’s consolidated total revenues are as follows:
Three Months Ended March 31, | ||||||
Customer |
| 2025 |
| 2024 |
| |
A | | % | | % | ||
B | | % | | % | ||
C | | % | * | |||
* represents less than 10%
Gross accounts receivable balances (including amounts that are unbilled) from individual customers that are approximately 10% or more of the Company’s gross accounts receivable balance are as follows:
March 31, | December 31, | |||||
Customer |
| 2025 | 2024 |
| ||
A |
| | % | | % | |
B | * | % | | % | ||
C | | % | | % | ||
E | * | % | | % | ||
22
Revenues from customers by geographic area based on the location of the customers’ work sites are as follows (amounts in thousands):
Three Months Ended March 31, | ||||||||||||
2025 |
| 2024 |
| |||||||||
Percentage |
| Percentage |
| |||||||||
| Revenues |
| of Revenues |
| Revenues |
| of Revenues |
| ||||
United States | $ | |
| | % | $ | |
| | % | ||
Japan | | | | | ||||||||
China |
| |
| |
| |
| | ||||
Rest of the world |
| |
| |
| |
| | ||||
Total revenues | $ | |
| | % | $ | |
| | % | ||
Long-lived assets, net by geographic area are as follows (in thousands):
March 31, | December 31, | |||||
| 2025 | 2024 | ||||
United States (1) | $ | | $ | | ||
Rest of the world |
| |
| | ||
Total long-lived assets, net | $ | | $ | | ||
(1) Includes assets deployed at customer sites which could be outside the U.S.
10. FAIR VALUE MEASUREMENTS
Fair value is the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The multiple assumptions used to value financial instruments are referred to as inputs, and a hierarchy for inputs used in measuring fair value is established, that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. These inputs are ranked according to a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.
Level 1 - | Inputs are quoted prices in active markets for identical assets or liabilities. |
|
|
Level 2 - | Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data. |
|
|
Level 3 - | Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. |
23
The following table represents the Company’s assets measured at fair value on a recurring basis and the basis for those measurements (in thousands):
Fair Value Measurements Using | ||||||||||||||
Balance Sheet | March 31, | |||||||||||||
Assets | Classification | 2025 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||||
Money market mutual funds | Cash equivalents | $ | | $ | | $ | — | $ | — | |||||
Available-for-sale debt securities: |
|
|
|
|
|
|
|
| ||||||
U.S. Government securities (1) | Short-term investments |
| |
| |
| — |
| — | |||||
Convertible note receivable (2) | Other non-current assets | | — | — | | |||||||||
Total | $ | | $ | | $ | — | $ | | ||||||
Fair Value Measurements Using | ||||||||||||||
Balance Sheet | December 31, | |||||||||||||
Assets | Classification |
| 2024 |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||||
Money market mutual funds | Cash equivalents | $ | | $ | | $ | — | $ | — | |||||
Available-for-sale debt securities: |
|
|
|
|
|
|
| |||||||
U.S. Government securities (1) | Short-term investments | |
| |
| — |
| — | ||||||
Convertible note receivable (2) | Other non-current assets | | — | — | | |||||||||
Total | $ | | $ | | $ | — | $ | | ||||||
| (1) | The amortized cost of the Company’s investments in U.S. Government securities approximated their fair value due to their short-term maturities, and there have been no events or changes in circumstances that would have had a significant effect on the fair value of these securities in the periods presented. For the three months ended March 31, 2025 and 2024, there were no material realized or unrealized gains or losses, either individually or in the aggregate. |
| (2) | In August 2024, the Company purchased a $ |
11. COMMITMENTS AND CONTINGENCIES
Strategic Partnership with Advantest — See Note 12, Strategic Partnership Agreement with Advantest and Related Party Transactions, for the discussion about the Company’s commitments under the strategic partnership with Advantest.
Operating Leases — Refer to Note 4, Leases, for the discussion about the Company’s lease commitments.
Indemnifications — The Company generally provides a warranty to its customers that its software will perform substantially in accordance with documented specifications typically for a period of
The Company’s standard product warranty terms for the sale of its DFI system product generally include post-sales support and repairs or replacement of a product at no additional charge for a contractually agreed period of time. The standard warranty reserve is based on estimated total expected costs to fulfill our warranty obligation based on best available information as of the reporting date. The standard warranty reserve was immaterial as of March 31, 2025 and December 31, 2024.
24
Purchase Obligations — The Company has purchase obligations with certain suppliers for the purchase of goods and services entered into in the ordinary course of business. As of March 31, 2025, total outstanding purchase obligations were $
Indemnification of Officers and Directors — As permitted by the Delaware General Corporation Law, the Company has included a provision in its certificate of incorporation to eliminate the personal liability of its officers and directors for monetary damages for breach or alleged breach of their fiduciary duties as officers or directors.
In addition, the Bylaws of the Company provide that the Company is required to indemnify its officers and directors even when indemnification would otherwise be discretionary, and the Company is required to advance expenses to its officers and directors as incurred in connection with proceedings against them for which they may be indemnified. The Company has entered into indemnification agreements with its officers and directors containing provisions that are in some respects broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements require the Company to indemnify its officers and directors against liabilities that may arise by reason of their status or service as officers and directors other than for liabilities arising from willful misconduct of a culpable nature, to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors’ and officers’ insurance if available on reasonable terms. The Company has obtained directors’ and officers’ liability insurance in amounts comparable to other companies of the Company’s size and in the Company’s industry. Since a maximum obligation of the Company is not explicitly stated in the Company’s Bylaws or in its indemnification agreements and will depend on the facts and circumstances that arise out of any future claims, the overall maximum amount of the obligations cannot be reasonably estimated.
Legal Proceedings — From time to time, the Company is subject to various claims and legal proceedings that arise in the ordinary course of business. The Company accrues for losses related to litigation when a potential loss is probable, and the loss can be reasonably estimated in accordance with FASB requirements. As of March 31, 2025, the Company was not party to any material legal proceedings for which a loss was probable or an amount was accrued. From time to time, the Company may enter into contingent fee arrangements with external legal firms that may represent the Company in legal proceedings related to disputes. Contingent legal fees are accrued by the Company when they are probable and reasonably estimable.
On May 6, 2020, the Company initiated an arbitration proceeding with the Hong Kong International Arbitration Center (the “Tribunal”) against SMIC New Technology Research & Development (Shanghai) Corporation (“SMIC”) due to SMIC’s failure to pay fees due to the Company under a series of contracts. The Company seeks to recover the unpaid fees, a declaration requiring SMIC to pay fees under the contracts in the future (or a lump sum payment to end the contract), and costs associated with bringing the arbitration proceeding. SMIC denies liability and an arbitration hearing was held in February 2023. Final written submissions were submitted by the parties at the end of August 2023, and the parties submitted answers to the Tribunal’s final questions in August 2024. The Company is awaiting the Tribunal’s decision on a judgment.
12. STRATEGIC PARTNERSHIP AGREEMENT WITH ADVANTEST AND RELATED PARTY TRANSACTIONS
In July 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”), which includes: (i) a Securities Purchase Agreement wherein the Company issued and sold to Advantest America, Inc., an aggregate of
Analytics revenue recognized from Advantest was $
25
13. DEBT
Debt as of March 31, 2025 consisted of (in thousands):
March 31, | ||||||
2025 | ||||||
Term loan | $ | | ||||
Revolving credit facility | | |||||
Total debt (principal amount) | | |||||
Unamortized debt discount and financing costs | ( | |||||
Total debt, net of unamortized debt discount and financing costs | $ | | ||||
Reported as: | ||||||
Current portion of long-term debt, net | $ | | ||||
Long-term debt, net | | |||||
Total debt, net | $ | | ||||
On March 7, 2025, the Company entered into a Credit Agreement (the “Credit Agreement”) with the lenders who are party to the Credit Agreement and the lenders who may become a party to the Credit Agreement pursuant to the terms thereof (the “Lenders”) and Wells Fargo Bank, National Association, as administrative agent to the Lenders (the “Agent”).
The Credit Agreement provides for (a) a revolving credit facility in an aggregate principal amount of $
Borrowings under the Credit Facilities will accrue interest at rates equal, at the Company’s election, to (i) the alternate base rate, which is defined as the highest of (a) the federal funds effective rate in effect from time to time plus
The Credit Agreement contains customary representations and warranties, as well as customary affirmative and negative covenants. Negative covenants include, among others, restrictions on the incurrence of debt, the incurrence of liens, the making of investments and distributions, dividends and stock buy-backs. In addition, the Credit Agreement requires that the Company maintain a consolidated total net leverage ratio of not greater than
The Credit Agreement contains customary events of default. Upon the occurrence and during the continuance of an event of default, the Agent may declare the outstanding advances and all other obligations under the Credit Agreement immediately due and payable.
The obligations under the Credit Agreement are guaranteed by all present and future material domestic subsidiaries of the Company (collectively with the Company referred to herein as the “Credit Parties”), subject to customary exceptions, and are secured by the equity interests of the Credit Parties (other than the Company) and substantially all of the personal property owned by the Credit Parties, including 65% of the equity interests of certain foreign subsidiaries owned by the Credit Parties.
26
The Company used the amounts borrowed under the Credit Facilities to finance, in part, the purchase price paid for the acquisition of SecureWise (see Note 14, Business Combination).
Future Payments on Total Debt
As of March 31, 2025, the estimated future principal payments of the total long-term debt were as follows (in thousands):
Year Ending December 31, |
| Amount | |
2025 (remaining nine months) | $ | | |
2026 |
| | |
2027 |
| | |
2028 |
| | |
2029 | | ||
2030 | | ||
Total future principal payments of long-term debt |
| $ | |
14. BUSINESS COMBINATION
On February 19, 2025, the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Telit IOT Solutions Inc., a Delaware corporation (the “Seller”), and SecureWise, pursuant to which the Company agreed to acquire the Seller’s SecureWise business (the “Business”) by means of a purchase of all of the outstanding equity interests of SecureWise held by the Seller (the “Transaction”).
On March 7, 2025, the Company completed the acquisition of the Business from the Seller pursuant to the Purchase Agreement for a cash purchase price of $
The Company expects the Transaction to accelerate equipment makers’ ability to derive value from equipment data by enabling them to leverage the Company’s Exensio analytics software and to expand the capability of the Company’s secure data exchange (“DEX”) outsourced semiconductor assembly and test (“OSAT”) network by allowing equipment makers, fab operators, and fabless companies to collaborate to optimize chip manufacturing and test.
The Company accounted for the Transaction as a business combination in accordance with FASB ASC Topic 805, Business Combinations. This method requires that assets acquired and liabilities assumed in a business combination be recognized at their respective estimated fair values as of the acquisition date. The Company allocated the purchase price to identifiable assets acquired based on their estimated fair values. The fair value of the consideration transferred and the assets acquired and liabilities assumed was determined by the Company and in doing so management engaged a third-party valuation specialist to assist with the measurement of the fair value of identifiable intangible assets. The estimated fair value of the identifiable assets acquired and liabilities assumed was based on management’s best estimates. The fair value of the customer relationships was determined using the multi-period excess earnings income approach or cost approach. The fair value of trade names and developed technology was determined using the relief-from-royalty method. The fair value of acquired technology was determined using the cost approach. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill recorded from this acquisition represents business benefits the Company anticipates from the acquired workforce and expectation for expanded sales opportunities to foster further business growth. The goodwill associated with the acquisition is deductible for tax purposes.
The Company expensed all transaction costs in the period in which they were incurred. The total non-recurring legal, finance, integration and other costs related to the acquisition of SecureWise amounted to $
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The preliminary allocation of the purchase price for the acquisition of SecureWise, as of the date of the completion of the Transaction, is as follows (in thousands, except amortization period):
Amortization | |||||
| Amount |
| Period (Years) | ||
Allocation of Purchase Price: |
|
|
|
| |
Fair value estimates of assets acquired and liabilities assumed |
|
|
|
| |
Cash | $ | |
|
| |
Accounts receivable | | ||||
Prepaid and other assets | | ||||
Fixed assets | | ||||
Fair value of intangible assets: |
|
|
| ||
Trademark | | ||||
Customer relationships |
| |
| ||
Developed technology |
| |
| ||
Goodwill |
| |
| N/A | |
Accounts payable and other current liabilities | ( |
|
| ||
Total purchase price allocation | $ | |
|
| |
The estimated fair value of the accounts receivable acquired approximates the contractual value of $
The Company is still finalizing the allocation of the purchase price to the individual assets acquired. Accordingly, these preliminary estimates are subject to change during the measurement period, which is the period subsequent to the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination, not to exceed one year from the acquisition date. The final purchase price allocation, which may include changes in the allocations within intangible assets and between intangible assets and goodwill, as well as changes in the estimated useful lives of the intangible assets, will be determined when the Company has completed the detailed review of underlying inputs and assumptions used in its preliminary purchase price allocation.
Pro forma information reflecting the impact of the Transaction has not been presented as the Transaction was not material to the Company’s financial results.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact may be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “projected,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target” or “continue,” the negative effect of terms like these or other similar expressions. These statements include, but are not limited to, statements related to: the Company’s business strategy and objectives; the Company’s intellectual property and proprietary software, information and technology; the Company’s sales and marketing strategy, expectations regarding strategic alliances and relationships; investments in research and development; industry trends; macroeconomic factors, inventories, and demand; changing export controls and sanctions; U.S. administrative initiatives; investments in semiconductor manufacturing; geopolitical tensions and conflicts; fluctuations in the Company’s quarterly results; and other statements identified by words such as “could,” “expects,” “intends,” “may,” “plans,” “potential,” “should,” “will,” “would,” or similar expressions and the negatives of those terms, that are subject to future events and circumstances, and uncertainties that could cause results to differ materially include risks associated with: the effectiveness of the Company’s business and technology strategies; current semiconductor industry trends and competition; rates of adoption of the Company’s solutions by new and existing customers; project milestones or delays and performance criteria achieved; cost and schedule of new product development and investments in research and development; the continuing impact of macroeconomic conditions, including inflation, changing interest rates and tariffs, the evolving trade regulatory environment and geopolitical tensions, and other trends impacting the semiconductor industry, the Company’s customers, operations, and supply and demand for its products; supply chain disruptions; the success of the Company’s strategic growth opportunities and partnerships; recent and future acquisitions, strategic alliances and relationships and the Company’s ability to successfully integrate acquired businesses and technologies; whether the Company can successfully convert backlog into revenue; customers’ production volumes under contracts that provide Gainshare; the sufficiency of the Company’s cash resources and anticipated funds from operations; the Company’s ability to obtain additional financing if needed; the Company’s ability to use support and updates for certain open-source software; and other risks and uncertainties discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”). These forward-looking statements are only predictions. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those anticipated or projected. All forward-looking statements and other information included in this document are based on information available to us on the date of filing and we further caution investors that our business and financial performance are subject to substantial risks and uncertainties. We assume no obligation to update publicly any such forward-looking statements. In evaluating these statements, you should specifically consider various factors, including the risk factors set forth in Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 27, 2025 (the “Annual Report”). All references to “we,” “us,” “our,” “PDF,” “PDF Solutions” or “the Company” refer to PDF Solutions, Inc.
Cimetrix, CV, DFI, Exensio, PDF Solutions, secureWISE, and the Cimetrix, Exensio, PDF Solutions, and secureWISE logos, are trademarks or registered trademarks of PDF Solutions, Inc. or its subsidiaries.
Overview
We offer products and services designed to empower organizations across the semiconductor and electronics ecosystems to connect, collect, manage, transfer, and analyze data about design, equipment, manufacturing, and test to improve the yield and quality of their products. We derive revenues from two sources: Analytics and Integrated Yield Ramp. Our offerings combine proprietary software, professional services using proven methodologies, third-party cloud-hosting platforms for software-as-a-service (“SaaS”), electrical measurement hardware tools, and physical intellectual property (“IP”) for integrated circuit (“IC”) designs. We primarily monetize our offerings through license fees and contract fees for professional services and SaaS. In some cases, especially on our historical Integrated Yield Ramp engagements, we also receive a value-based variable fee or royalty, which we call Gainshare. Our products, services, and solutions have been sold to integrated device manufacturers (“IDMs”), fabless semiconductor companies, foundries, out-sourced semiconductor assembly and test (“OSATs”), capital equipment manufacturers, and system houses.
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We are headquartered in Santa Clara, California and also operate worldwide with offices in Canada, China, France, Germany, Italy, Japan, Korea, and Taiwan.
Acquisition of SecureWise LLC
On March 7, 2025, we completed the acquisition of SecureWise LLC (“SecureWise”), a Delaware limited liability company (see Note 14, Business Combinations, in the notes to condensed consolidated financial statements (unaudited) in Part I, Item 1 of this Quarterly Report on Form 10-Q), and added the widely-used, secure, remote secureWISE connectivity solution to our products and services portfolio. We expect this acquisition to also accelerate equipment makers’ ability to derive value from equipment data by enabling them to leverage our Exensio analytics software and to expand the capability of our secure data exchange (“DEX”) outsourced semiconductor assembly and test (“OSAT”) network by allowing equipment makers, fab operators, and fabless companies to collaborate to optimize chip manufacturing and test.
Industry Trends
Certain trends may affect our Analytics revenue specifically. In particular, the confluence of Industry 4.0 (i.e. the fourth industrial revolution, or the automation and data exchange in manufacturing technologies and processes) and cloud computing (i.e. the on-demand availability of computing resources and data storage without direct active management by the user) is driving increased innovation in semiconductor and electronics manufacturing and analytics, as well as in the organization of information technology (“IT”) networks and computing at semiconductor and electronics companies across the ecosystem. First, the ubiquity of wireless connectivity and sensor technology enables any manufacturing company to augment its factories and visualize its entire production line. In parallel, the cost per terabyte of data storage has generally decreased over time. The combination of these two trends means that more data is collected and stored than ever before. Further, semiconductor companies are striving to analyze these very large data sets in real-time to make rapid decisions that measurably improve manufacturing efficiency and quality. In parallel, the traditional practice of on-site data storage, even for highly sensitive data, is changing. The ability to cost-effectively and securely store, analyze, and retrieve massive quantities of data from the cloud versus on-premise enables data to be utilized across a much broader population of users, frequently resulting in greater demands on analytics programs. The combination of these latter two trends means that cloud-based, analytics programs that effectively manage identity management, physical security, and data protection are increasingly in demand for insights and efficiencies across the organizations of these companies. We believe that all these trends will continue for the next few years, and the challenges involved in adopting Industry 4.0 and secure cloud computing will create opportunities for our combination of advanced analytics capabilities, proven and established supporting infrastructure, and professional services to configure our products to meet customers’ specialized needs.
Other trends may continue to affect our Characterization services business and Integrated Yield Ramp revenue specifically. For example, semiconductor manufacturers may experience lower wafer shipments due to weakness in the global economy, which would negatively impact the gainshare component of our Integrated Yield Ramp revenue. The logic foundry market at the leading-edge nodes, such as 7nm, 5nm, and smaller, underwent significant change over the past few years. The leading foundry continues to dominate market share. This trend will likely continue to impact our Characterization services business on these nodes. We expect most logic foundries to invest in derivatives of older process nodes, such as 14nm, to extract additional value as many of their customers will not move to advanced nodes due to either technological barriers or restrictive economics. Foundries that participate at leading edge nodes are expected to continue to invest in new technologies such as memory, 2.5D and 3D packaging, extreme ultraviolet lithography, and 3D architectures such as backside power and gate-all-around transistors, as well as new innovations in process control and variability management. We expect China’s investment in semiconductors to continue. Compliance with changing U.S. export restrictions limit our possible business with Chinese semiconductor manufacturers on advanced nodes. As a result of these market developments, we have chosen to focus our resources and investments in products (including differentiated data), services, and solutions for analytics.
There are other global or business trends that may affect our business opportunities generally as follows:
| ● | Macroeconomy, inventories, and demand. The worldwide economic performance is uneven, and the possibility of a recession persists, leading to uneven demand. Inventories of semiconductor devices remain elevated in some instances. With high inventories and soft demand for some product segments, some semiconductor fab utilization rates are also low and semiconductor capital equipment orders have been impacted for some vendors and market |
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| segments. As a result, some purchase cycles, especially for enterprise software and capital equipment and particularly with respect to larger deals, have lengthened in recent years and may continue to do so. |
| ● | Changing export controls and sanctions. The U.S. government continues to expand and intensify export controls and sanctions, with a major focus on the destinations of and/or entities in the People’s Republic of China (“P.R.C.”), Russian Federation, and Belarus. Some customers in the P.R.C., in particular, have expressed concerns to us that continued action by the U.S. government could potentially interrupt their ability to make use of our products or services, which has in some cases, and could in the future, negatively impact the demand for our products and services by these customers. Recent additions to regulations include expansion of special Foreign Direct Product Rules, which extend the reach of the EAR to certain foreign-made products produced with certain U.S. items in certain cases of designated end-users or end-uses, and to renewal licenses for certain lawfully delivered products that would have changed status under new regulations. Such regulatory additions could negatively affect sales. Additional proposed and complicated regulations, including for added restrictions on U.S. person activity, remain pending. U.S. government policy and regulation remain fluid and uncertain, and could in the future impact segments of our business. Other countries and jurisdictions with important roles in our industry are updating some of their export control regulations to further align with those of the U.S. government and, in some cases, to counter U.S. regulations. For example, the P.R.C. has imposed restrictions on imports of certain memory integrated circuits (“ICs”) offered by U.S. companies and has been developing its legal authorities to counter foreign sanctions. On November 27, 2024, the U.S. government renewed its caution that visitors to the P.R.C. are subject to arbitrary enforcement of local laws and wrongful detention, a risk that could deter or hinder certain business activities. Based on our current assessments, we expect the near-term impact of these expanded trade restrictions on our business to be limited, but revisions, clarifications, and proposals that are still in government development and open questions of interpretation leave much unknown. |
| ● | U.S. Administrative Initiatives. The new U.S. Administration has made and is expected to continue to make changes to U.S. trade policy, including renegotiating or terminating existing trade agreements and leveraging tariffs. For example, the U.S. recently imposed additional tariffs on imports from China, Canada, and Mexico. We do not import into the U.S. a significant volume of goods of those countries. Trade conflict through exchange of tariffs and other retaliatory actions are expected to impact worldwide supply chains, increase prices and put downward pressure on economic activity, and could negatively affect our future sales in various geographic markets. The uncertainty caused by these recent regulations and the potential for additional future restrictions could negatively affect our future sales, including in but not limited to the P.R.C. market. |
| ● | Geopolitical tensions/conflicts. Geopolitical tensions and conflicts in various locations around the world have created volatility in the global financial markets and may have further global economic consequences, including potential disruptions of the global supply chain, heightened volatility of commodity and raw material prices, and increased fears of a global recession. We have contractors located in the West Bank and in Israel, who are providing software development and customer technical support services, and we have developed contingency plans to use alternative resources to continue serving customers, if needed. Any escalations could lead to disruptions or reductions in international trade, deter or prevent purchasing activity of customers, and negatively impact our development timelines and customer support (with respect to the conflicts in the Middle East) or China sales (with respect to U.S.-P.R.C. tensions) and financial results in general (with respect to global tensions). |
Financial Highlights
Financial highlights for the three months ended March 31, 2025, are as follows:
| ● | Total revenues were $47.8 million, an increase of $6.5 million, or 16%, compared to the three months ended March 31, 2024. Analytics revenue was $42.5 million, an increase of $4.0 million, or 10%, compared to the three months ended March 31, 2024. The increase in Analytics revenue was driven by increases in revenues from Exensio and Cimetrix software licenses and CV and secureWISE systems, partially offset by a decrease in revenues from DFI systems. Integrated Yield Ramp revenue was $5.3 million, an increase of $2.5 million, or 86%, compared to the three months ended March 31, 2024. The increase in Integrated Yield Ramp revenue was primarily due to higher Gainshare from increased customer wafer shipments at non-leading-edge nodes, partially offset by a decrease in hours worked on fixed-fees engagements. |
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| ● | Costs of revenues decreased $0.6 million, compared to the three months ended March 31, 2024, primarily due to decreases in hardware costs and facilities and IT-related costs including depreciation and amortization expense. These decreases were partially offset by increases in subcontractor costs, third-party cloud-delivery costs, and personnel-related costs. |
| ● | Net loss was $3.0 million, compared to a net loss of $0.4 million for the three months ended March 31, 2024. The increase in net loss was primarily attributable to (i) an increase in sales and marketing activities, and general and administrative expenses, which was primarily due to acquisition costs related to the acquisition of SecureWise, and (ii) an increase in research and development expenses, partially offset by an increase in total revenues. |
Critical Accounting Policies
Our discussion and analysis of our financial conditions, results of operations and cash flows are based on our condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Our preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The most significant estimates and assumptions relate to revenue recognition, valuation of long-lived assets including goodwill and intangible assets, stock-based compensation and the realization of deferred tax assets (“DTAs”). Actual amounts may differ from such estimates under different assumptions or conditions.
For additional information about our critical accounting policies, see Note 1, Basis of Presentation and Summary of Significant Accounting Policies, and Note 2, Revenue from Contracts with Customers to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q and Part II Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation, under the heading of “Critical Accounting Estimates” in our Annual Report. There were no material changes during the three months ended March 31, 2025, to the items that we disclosed as our critical accounting policies and estimates in Part II, Item 7 of the Annual Report.
Recent Accounting Pronouncements and Accounting Changes
See Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q, for a description of recent accounting pronouncements and accounting changes, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements.
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Results of Operations
Discussion of Financial Data for the Three months ended March 31, 2025 and 2024
Revenues, Costs of Revenues, and Gross Margin
Three Months Ended | |||||||||||
March 31, | Change | ||||||||||
(Dollars in thousands) | 2025 |
| 2024 |
| $ |
| % |
| |||
Revenues: |
|
|
|
|
|
|
| ||||
Analytics | $ | 42,471 | $ | 38,463 | $ | 4,008 |
| 10 | % | ||
Integrated Yield Ramp |
| 5,307 |
| 2,847 |
| 2,460 |
| 86 | % | ||
Total revenues | 47,778 | 41,310 | 6,468 |
| 16 | % | |||||
Costs of revenues |
| 12,955 |
| 13,529 |
| (574) |
| (4) | % | ||
Gross profit | $ | 34,823 | $ | 27,781 | $ | 7,042 |
| 25 | % | ||
Gross margin |
| 73 | % |
| 67 | % |
|
|
| ||
|
| ||||||||||
Analytics revenue as a percentage of total revenues |
| 89 | % |
| 93 | % |
|
|
|
| |
Integrated Yield Ramp revenue as a percentage of total revenues |
| 11 | % |
| 7 | % |
|
|
|
| |
Analytics Revenue
Analytics revenue increased $4.0 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase in Analytics revenue was driven by increases in revenues from Exensio and Cimetrix software licenses, the addition of revenues related to SecureWise products and services, and CV systems, partially offset by a decrease in revenues from DFI systems.
Integrated Yield Ramp Revenue
Integrated Yield Ramp revenue increased $2.5 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to higher Gainshare from increased customer wafer shipments at non-leading-edge nodes, partially offset by a decrease in hours worked on fixed-fees engagements.
Our Integrated Yield Ramp revenue may continue to fluctuate from period to period primarily due to the contribution of Gainshare, which is dependent on many factors that are outside our control, including among others, continued production of ICs by our customers at facilities at which we generate Gainshare, sustained yield improvements by our customers, and whether we enter into new contracts containing Gainshare.
Our Analytics and Integrated Yield Ramp revenues may also fluctuate in the future and are dependent on a number of factors, including the semiconductor industry’s continued acceptance of our products, services and solutions, the timing of purchases by existing and new customers, cancellations by existing customers, and our ability to attract new customers and penetrate new markets, supply chain challenges and further penetration of our current customer base. Fluctuations in future results may also occur if any of our significant customers renegotiate pre-existing contractual commitments, including due to adverse changes in their own business.
Costs of Revenues
Costs of revenues consist primarily of costs incurred to provide and support our services, costs recognized in connection with licensing our software, IT and facilities-related costs and amortization of acquired technology. Service costs include material costs, hardware costs (including cost of leased assets under sales-type lease), personnel-related costs (including compensation, employee benefits, bonus and stock-based compensation expense), subcontractor costs, overhead costs, travel expenses, and allocated facilities-related costs. Software license costs consist of costs associated with third-party cloud-
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delivery related expenses and licensing third-party software used by us in providing services to our customers in solution engagements or sold in conjunction with our software products.
The decrease in costs of revenues of $0.6 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, was primarily due to (i) a $1.5 million decrease in hardware costs and (ii) a $0.3 million decrease in facilities and IT-related costs including depreciation and amortization expense. These decreases were partially offset by (a) a $0.6 million increase in personnel-related costs due to higher wages, (b) a $0.4 million increase in subcontractor costs, and (c) a $0.1 million increase in third-party cloud-delivery costs.
Gross Margin
Gross margin increased 6 percentage points for the three months ended March 31, 2025, to 73%, compared to 67% for the three months ended March 31, 2024. The higher gross margin during the three months ended March 31, 2025, was primarily due to higher Analytics and Gainshare revenues and lower costs of revenues for the three months ended March 31, 2025.
Operating Expenses:
Research and Development
Three Months Ended | ||||||||||||
March 31, | Change | |||||||||||
(Dollars in thousands) |
| 2025 |
| 2024 |
| $ | % |
| ||||
Research and development | $ | 14,628 | $ | 12,984 | $ | 1,644 |
| 13 | % | |||
As a percentage of total revenues |
| 31 | % |
| 31 | % |
|
|
|
| ||
Research and development expenses consist primarily of personnel-related costs (including compensation, employee benefits, bonus and stock-based compensation expense), outside development services, travel expenses, third-party cloud-services related costs, IT and facilities cost allocations to support product development activities.
Research and development expenses increased $1.6 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to (i) a $0.8 million increase in subcontractor fees primarily related to Cimetrix software, (ii) a $0.3 million increase in facilities and IT-related costs, (iii) a $0.3 million increase in personnel-related costs due to increased headcount, worldwide salary increases, and stock-based compensation expense, and (iv) a $0.2 million increase in third-party cloud-delivery costs.
We anticipate our expenses in research and development will fluctuate in absolute dollars from period to period as a result of the size and the timing of product development projects.
Selling, General, and Administrative
Three Months Ended | ||||||||||||
March 31, | Change | |||||||||||
(Dollars in thousands) |
| 2025 |
| 2024 |
| $ | % |
| ||||
Selling, general, and administrative | $ | 23,372 | $ | 16,498 | $ | 6,874 |
| 42 | % | |||
As a percentage of total revenues |
| 49 | % |
| 40 | % |
|
|
|
| ||
Selling, general, and administrative expenses consist primarily of personnel-related costs (including compensation, employee benefits, bonus, commission and stock-based compensation expense for sales, marketing, and general and administrative personnel), legal, tax and accounting services, marketing communications and trade conference-related expenses, third-party cloud-services related costs, travel, business acquisition costs, IT and facilities cost allocations.
Selling, general, and administrative expenses increased $6.9 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to (i) $4.3 million in non-recurring legal, finance, integration, and other costs related to the acquisition of SecureWise, (ii) a $1.9 million increase in personnel-related costs
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mainly resulting from increased headcount, worldwide salary increases, bonus expense, and stock-based compensation expense, (iii) a $0.7 million increase in facilities and IT-related costs including shipping costs and depreciation expense, and (iv) a $0.5 million increase in subcontractor fees, partially offset by a $0.8 million decrease in general legal expenses.
We anticipate our selling, general, and administrative expenses will fluctuate in absolute dollars from period to period as a result of cost control initiatives and to support increased selling efforts in the future.
Amortization of Acquired Intangible Assets
Three Months Ended | ||||||||||||
March 31, | Change | |||||||||||
(Dollars in thousands) |
| 2025 |
| 2024 |
| $ | % |
| ||||
Amortization of acquired intangible assets | $ | 378 | $ | 259 | $ | 119 |
| 46 | % | |||
Amortization of acquired intangible assets primarily consists of amortization of intangibles acquired as a result of certain business combinations.
Interest Expense
Three Months Ended | ||||||||||||
| March 31, | Change | ||||||||||
(Dollars in thousands) | 2025 |
| 2024 |
| $ | % |
| |||||
Interest expense | $ | (311) | $ | — | $ | (311) |
| — | % | |||
Interest expense is from our long-term debt that was used in financing the acquisition of SecureWise, and amortization of debt discount and financing costs.
Other Income (Expense), Net
Three Months Ended | ||||||||||||
| March 31, | Change | ||||||||||
(Dollars in thousands) | 2025 |
| 2024 |
| $ | % |
| |||||
Other income (expense), net | $ | 870 | $ | 1,692 | $ | (822) |
| 49 | % | |||
Other income (expense), net, primarily consists of interest income and foreign currency transaction exchange gains and losses. Other income (expense), net decreased $0.8 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to (i) a $0.6 million decrease in interest income from cash, cash equivalents and short-term investments, and (ii) $0.2 million net unfavorable fluctuations in foreign currency exchange rates.
Income Tax Expense
Three Months Ended | ||||||||||||
| March 31, | Change | ||||||||||
(Dollars in thousands) | 2025 |
| 2024 |
| $ | % |
| |||||
Income tax expense | $ | (36) | $ | (125) | $ | (89) |
| (71) | % | |||
Income tax expense decreased for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to changes in the foreign, federal and state taxes and year-to-date recognition of worldwide pre-tax income in relation to their forecasted amounts for full years.
Any significant change in our future effective tax rates could adversely impact our consolidated financial position, results of operations and cash flows. Our future tax rates may be adversely affected by a number of factors including increase in expenses not deductible for tax purposes, new or changing tax legislation in the United States and in foreign countries where
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we are subject to tax jurisdictions, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, our ability to use tax attributes such as research and development tax credits and net operation losses, the tax effects of employee stock activity, audit examinations with adverse outcomes, changes in accounting principles generally accepted in the United States of America and the effectiveness of our tax planning strategies.
Liquidity and Capital Resources
As of March 31, 2025, our working capital, defined as total current assets less total current liabilities, was $76.3 million, compared to $145.4 million as of December 31, 2024. Total cash, cash equivalents, and short-term investments were $54.1 million as of March 31, 2025, compared to cash, cash equivalents, and short-term investments of $114.9 million as of December 31, 2024. As of March 31, 2025, and December 31, 2024, cash and cash equivalents held by our foreign subsidiaries were $15.0 million and $13.3 million, respectively.
Our material cash requirements include interest payments on our debt, operating lease payments, and purchase obligations to support our operations. Refer to Part I, Item 1, Financial Statements, Note 13, Debt, Note 4, Leases, Note 14, Business Combination and Note 11, Commitments and Contingencies for details relating to our material cash requirements for debt, leasing arrangements, including future maturities of operating lease liabilities, and purchase obligations, respectively.
We believe that our existing cash resources and anticipated funds from operations will satisfy our cash requirements to fund our operating activities, capital expenditures, other obligations including repayment of long-term debt and corresponding interest for at least the next twelve months, and thereafter for the foreseeable future; however, we will continue to evaluate if we require additional funding to meet our longer-term needs.
Term Loan and Revolving Credit Facility
On March 7, 2025, we entered into a Credit Agreement (the “Credit Agreement”) with the lenders who are party to the Credit Agreement and the lenders who may become a party to the Credit Agreement pursuant to the terms thereof (the “Lenders”) and Wells Fargo Bank, National Association, as administrative agent to the Lenders (the “Agent”).
The Credit Agreement provides for (a) a revolving credit facility in an aggregate principal amount of $45 million (the “Revolving Credit Facility”) and (b) a term loan facility in an aggregate principal amount of $25 million (the “Term Loan” and together with the Revolving Credit Facility, the “Credit Facilities”).
Borrowings under the Credit Facilities will accrue interest at rates equal, at our election, to (i) the alternate base rate, which is defined as the highest of (a) the federal funds effective rate in effect from time to time plus 0.50%, (b) the prime commercial lending rate in effect from time to time, and (c) the daily simple secured overnight financing rate (“SOFR”) plus 1.00% or (ii) SOFR, plus, in each case, the applicable margin. The applicable margin for the Revolving Credit Facility borrowings bearing interest at the alternate base rate ranges from 1.00% to 1.75%, and the applicable margin for Revolving Credit Facility borrowings bearing interest based on the SOFR ranges from 2.00% to 2.75%, in each case, based on our consolidated total net leverage ratio as of the most recently ended fiscal quarter. The applicable margin for Term Loan borrowings bearing interest at the alternate base rate ranges from 1.00% to 1.75%, and the applicable margin for Term Loan borrowings bearing interest based on the SOFR ranges from 2.00% to 2.75%, in each case, based on our consolidated total net leverage ratio as of the most recently ended fiscal quarter. We will pay an annual commitment fee during the term of the Credit Agreement at a rate per annum equal to 0.50% for any undrawn portion of the Revolving Credit Facility.
The Credit Agreement contains customary representations and warranties, as well as customary affirmative and negative covenants. Negative covenants include, among others, restrictions on the incurrence of debt, the incurrence of liens, the making of investments and distributions, dividends and stock buy-backs. In addition, the Credit Agreement requires that we maintain a consolidated total net leverage ratio of not greater than 3.00 to 1.00, and a consolidated fixed charge coverage ratio of not less than 1.25 to 1.00. As of March 31, 2025, we were in compliance with the covenants contained in the Credit Agreement.
The Credit Agreement contains customary events of default. Upon the occurrence and during the continuance of an event of default, the Agent may declare the outstanding advances and all other obligations under the Credit Agreement immediately due and payable.
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The obligations under the Credit Agreement are guaranteed by all present and future material domestic subsidiaries of the Company (collectively with the Company referred to herein as the “Credit Parties”), subject to customary exceptions, and are secured by the equity interests of the Credit Parties (other than the Company) and substantially all of the personal property owned by the Credit Parties, including 65% of the equity interests of certain foreign subsidiaries owned by the Credit Parties.
The Company used the amounts borrowed under the Credit Facilities to finance, in part, the purchase price paid for the acquisition of SecureWise.
Repurchase of Company’s Common Stock
On April 15, 2024, the Board of Directors adopted a stock repurchase 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 from the adoption date. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors. The 2024 Program does not obligate the Company to acquire a minimum amount of shares and may be modified, suspended or terminated without prior notice. The Company has not repurchased any shares under the 2024 Program.
Cash Flow Data
The following table summarizes our cash flows for the periods presented:
Three Months Ended | |||||||||
March 31, | |||||||||
(In thousands) |
| 2025 |
| 2024 |
| $ Change | |||
Net cash flows provided by (used in): |
|
|
|
|
|
| |||
Operating activities | $ | 8,640 | $ | (1,862) | $ | 10,502 | |||
Investing activities |
| (123,861) |
| (2,642) |
| (121,219) | |||
Financing activities |
| 67,958 |
| (8,752) |
| 76,710 | |||
Effect of exchange rate changes on cash and cash equivalents |
| 403 |
| (466) |
| 869 | |||
Net change in cash and cash equivalents | $ | (46,860) | $ | (13,722) | $ | (33,138) | |||
Net Cash Flows Provided by (Used in) Operating Activities
Cash flows provided by operating activities during the three months ended March 31, 2025, consisted of net loss, adjusted for certain non-cash items which primarily consisted of depreciation and amortization, stock-based compensation expense, amortization of acquired intangible expense, amortization of costs capitalized to obtain revenue contracts, net accretion of discounts on short-term investments, accretion of unguaranteed residual assets and net change in operating assets and liabilities.
Net cash flows provided by operating activities was $8.6 million for the three months ended March 31, 2025, compared to net cash used in operating activities of $1.9 million for the three months ended March 31, 2024. The increase in cash provided by operating activities between the periods was driven primarily by higher collections from customers, partially offset by (i) an increase in bonus payments under the Company’s bonus plan, and (ii) an increase in payments of vendor invoices.
Net Cash Flows Used in Investing Activities
Net cash used in investing activities was $123.9 million for the three months ended March 31, 2025, compared to $2.6 million for the three months ended March 31, 2024.
For the three months ended March 31, 2025, cash used in investing activities primarily related to $129.7 million payments for the acquisition of SecureWise, net of cash acquired, $2.9 million purchases of short-term investments, and $8.2 million purchases and prepayments of property and equipment primarily related to our DFI systems, partially offset by $17.0 million proceeds from maturities and sales of short-term investments.
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For the three months ended March 31, 2024, cash used in investing activities primarily related to $19.6 million purchases of short-term investments, and $2.0 million purchases of property and equipment primarily related to our DFI systems, partially offset by $19.0 million proceeds from maturities and sales of short-term investments.
Net Cash Flows Provided by (Used in) Financing Activities
Net cash provided by financing activities was $68.0 million for the three months ended March 31, 2025, compared to cash used in financing activities of $8.8 million for the three months ended March 31, 2024.
For the three months ended March 31, 2025, net cash provided by financing activities primarily consisted of $69.2 million proceeds from long-term debt, net of debt financing costs, that was used in financing the acquisition of SecureWise, and $2.1 million proceeds from our employee stock purchase plan, offset by $3.3 million in cash payments for taxes related to net share settlement of equity awards.
For the three months ended March 31, 2024, net cash used in financing activities primarily consisted of $6.9 million repurchases of common stock, $3.8 million cash payments for taxes related to net share settlement of equity awards, partially offset by $1.9 million proceeds from our employee stock purchase plan and exercise of stock options.
Related Party Transactions
Refer to Note 12, Strategic Partnership Agreement with Advantest and Related Party Transactions, to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, for the discussion about related party transactions between the Company and Advantest (as defined therein).
Off-Balance Sheet Agreements
As of March 31, 2025, we do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The following discusses our exposure to market risk related to changes in interest rates and foreign currency exchange rates. We do not currently own any equity investments, nor do we expect to own any in the foreseeable future. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors.
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and long-term debt as described below.
As of March 31, 2025, we had cash, cash equivalents and short-term investments of $54.1 million. Cash and cash equivalents consisted of cash and highly liquid money market instruments and short-term investments consisted of U.S. Government securities. We would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest on our portfolio. A hypothetical increase in market interest rates of 100 basis points from the market rates in effect as of March 31, 2025, would cause the fair value of these investments to decrease by an immaterial amount which would not have significantly impacted our financial position or results of operations.
As of March 31, 2025, and periodically throughout the year, we have maintained cash balances in various operating accounts in excess of federally insured limits. We limit the amount of credit exposure to any financial institution by evaluating the creditworthiness of the financial institutions with which we invest and investing through more than one financial institution.
We are exposed to interest rate risk through our variable rate debt. As of March 31, 2025, we had $70.0 million of debt that is subject to variable interest rates that are based on the daily simple secured overnight financing rate (“SOFR”) or an alternate base rate. Refer to Note 13 – Debt for details relating to the debt. If the rates were to increase by 100 basis points from the rates in effect as of March 31, 2025, our interest expense on the variable rate debt would increase by an average of
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$0.5 million annually. There are inherent limitations in the sensitivity analysis presented, primarily due to the assumptions that interest rate changes would be instantaneous, while SOFR changes regularly. We do not currently hedge our interest rate risks but may determine to do so in the future. We will continue to monitor our exposure to interest rate risk.
Foreign Currency and Exchange Risk. Certain of our cash balances, receivables and payables for our international offices are denominated in the local currency, including the Euro, Yen, Chinese Yuan, New Taiwan Dollar and Canadian Dollar. Therefore, some of our activities including a portion of our revenues and operating expenditures are subject to foreign currency risks. We also have intercompany transactions with and between certain of our subsidiaries of differing functional currencies, resulting in foreign transaction gains or losses based on our period-end exchange rates. Due to potential volatility of currency exchange rates, we cannot predict the effect of exchange fluctuations on our business. To date, we have not entered into any foreign currency exchange contracts and currently do not expect to enter into foreign currency exchange contracts for trading or speculative purposes.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial and accounting officer, evaluated the effectiveness of our “disclosure controls and procedures” as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of March 31, 2025, in connection with the filing of this Quarterly Report on Form 10-Q. Based on that evaluation as of March 31, 2025, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.
On March 7, 2025, we completed the acquisition of SecureWise. SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from management’s assessment of internal control over financial reporting for a period not to exceed one year from the date of the acquisition. Accordingly, management has not assessed SecureWise internal control over financial reporting as of March 31, 2025.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Note 11, Commitments and Contingencies to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, for information regarding our legal proceedings.
Item 1A. Risk Factors
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 27, 2025. Any of such factors could result in a significant or material adverse effect on our result of operations or financial conditions. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no stock repurchases during the first quarter of 2025.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Insider Adoption or Termination of Trading Arrangements
During the quarter ended March 31, 2025,
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Item 6. Exhibits
Incorporated by Reference | |||||||
Exhibit | Exhibit Description | Form | Filing Date | Exhibit Number | SEC File No. | Provided Herewith | |
2.01 | 8-K | 2/19/2025 | 2.1 | 000-31311 | |||
3.01 | 10-Q | 8/8/2024 | 3.01 | 000-31311 | |||
3.02 | 8-K | 5/1/2019 | 3.1 | 000-31311 | |||
10.01 | 8-K | 3/7/2025 | 10.1 | 000-31311 | |||
31.01 | X | ||||||
31.02 | X | ||||||
32.01 | X | ||||||
32.02 | X | ||||||
101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | X | |||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||||||
* | Furnished, and not filed. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PDF SOLUTIONS, INC. | ||
Date: May 8, 2025 | By: | /s/ JOHN K. KIBARIAN |
John K. Kibarian | ||
President and Chief Executive Officer | ||
(principal executive officer) | ||
Date: May 8, 2025 | By: | /s/ ADNAN RAZA |
Adnan Raza | ||
Executive Vice President, Finance and Chief | ||
Financial Officer | ||
(principal financial and accounting officer) | ||
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