| | | | | Name |
| Age |
| Position |
| John K. Kibarian, Ph.D. | | 5759 | | President, Chief Executive Officer, and Director | | Adnan Raza | | 4851 | | Executive Vice President, Finance and Chief Financial Officer | | Kimon W. Michaels, Ph.D. | | 5457 | | Executive Vice President, Products and Solutions and Director | | Andrzej Strojwas, Ph.D. | | 71 | | Chief Technology Officer | |
John K. Kibarian, Ph.D., one of our founders, has served as President since November 1991 and has served as our Chief Executive Officer since July 2000. Dr. Kibarian has served as a director on our Board of Directors since December 1992. Dr. Kibarian received a B.S. in Electrical Engineering, an M.S. E.C.E. and a Ph.D. E.C.E. from Carnegie Mellon University. Adnan Raza, joined in January 2020 as Executive Vice President, Finance, and was appointed Chief Financial Officer effective in March 2020. Prior to joining the Company, Mr. Raza served as an independent strategy consultant for private and public companies from July 2019 to January 2020. Prior to that, Mr. Raza served in various roles at Synaptics Inc., a developer of human interface technologies, including as Senior Vice President of Corporate Development from August 2017 to June 2019 and Vice President of Corporate Development from February 2015 to August 2017. Prior roles include technology investment banking at Goldman, Sachs & Co. and UBS Investment Bank, strategic advising at Blackreef Capital, engineering and marketing at Azanda Network Devices, and engineering at Lucent Technologies. Mr. Raza also served as a Board Member at FIDO Alliance, an alliance of leading technology companies to enhance user security and authentication. Mr. Raza holds aan M.B.A. from The Wharton School at the University of Pennsylvania, a M. Eng. in Electrical Engineering from Cornell University, and a B.S. in Electrical Engineering from Valparaiso University. Kimon W. Michaels, Ph.D., one of our founders, has served as Vice President, Products and Solutions since July 2010 and was designated as an Executive VP in February 2019. Dr. Michaels served as Vice President, Design for Manufacturability from June 2007 through June 2010. Prior to that, Dr. Michaels served as Vice President, Field Operations for Manufacturing Process Solutions from January 2006 through May 2007, and has beenserved as a Directordirector on our Board of Directors since November 1995. From March 1993 through December 2005, he served in various vice presidential capacities. He also served as Chief Financial Officer of the Company from November 1995 to July 1998. Dr. Michaels received a B.S. in Electrical Engineering, and M.S. E.C.E. and a Ph.D. E.C.E. from Carnegie Mellon University. Andrzej Strojwas, Ph.D., served as a technical advisor to the Company from our founding until 2021 and as chief technologist from 1997 to 2021. He joined the Company as an employee in July 2021 as Vice President and Technical General Manager, and was appointed Chief Technology Officer effective December 2021. From October 1982 to July 2021, Dr. Strojwas was the Keithley Professor of Electrical and Computer Engineering at Carnegie Mellon University. In addition, Dr. Strojwas has held senior technical positions at Harris Semiconductor Co., AT&T Bell Labs, Texas Instruments, NEC, Hitachi, SEMATECH, and KLA. He holds an M.S. in Electronic Engineering from Warsaw Technical University and a Ph.D. in Electrical Engineering from Carnegie Mellon University. Available Information We file or furnish various reports, such as registration statements, periodic and current reports, proxy statements and other materials with the SEC. Our Internet website address is www.pdf.com. You may obtain, free of charge on our website, copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The Company'sCompany’s website address provided is not intended to function as a hyperlink, and the information on the Company'sCompany’s website is not, and should not be considered, part of this Annual Report on Form 10-K and is not incorporated by reference herein. The SEC maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers, such as us, that file electronically with the SEC.
Item 1A. Risk Factors A description of the risk factors associated with our business is set forth below. Some of these risks are highlighted in the following discussion, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations, Legal Proceedings, and Quantitative and Qualitative Disclosures About Market Risk. The occurrence of any of these risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, operating results, financial condition, and stock price. These risks and uncertainties could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Investors should carefully consider all relevant risks and uncertainties before investing in our common stock. Risk Factors Summary Risks Associated with Our Business | ● | We have invested significant resources into research and development of our DFI system and Exensio software and if we fail to successfully carry out these initiatives on the expected timeline or at all, our business, financial condition, or results of operations could be adversely impacted. |
| ● | Our sales cycle is lengthy and customers may delay entering into contracts or decide not to adopt our products or solutions after we have performed services or supported their evaluation of our technology, which could result in delays in recognizing revenue and could negatively impact our results of operations in a quarter or result in lower revenue than we expected if a contract is not consummated. |
| ● | We rely on sole-source providers for certain software as well as for specialized parts for our eProbe hardware and supply-chain delays or disruptions could increase our costs or impact our ability to provide complete software solutions or to build additional hardware tools or meet customer expectations or deadlines, which could result in lost sales and lower earnings. |
| ● | Our fixed-fee services for product or system installations/configurations may take longer than budgeted, which could slow our revenue recognition and may result in a lost contract or a claim of breach by our customers, which would negatively affect our financial and operating results. |
| ● | Our ability to sell our products, systems, and solutions depends in part on the quality of our support and services offerings, and the failure to offer high-quality support and services could negatively affect our sales and results of operations. |
| ● | Defects in our proprietary technologies, hardware and software tools, and failure to effectively remedy any such defects could decrease our revenue and our competitive market share. |
| ● | Objectionable disclosure of our customers’ confidential information or our failure to comply with our customers’ security rules, including for those related to SaaS access, AI use, or our on-site access, could result in costly litigation, cause us to lose existing and potential customers, or negatively impact on-going business with existing customers. |
| ● | We generate a significant portion of our revenues from a limited number of customers, and a large percentage of our revenues from one customer, so defaults or decreased business with, or the loss of, any one of these customers, or pricing pressure, or customer consolidation could significantly reduce our revenues or margins and negatively impact results of operations. |
| ● | If we do not continuously meet our development milestones of key research and development projects or successfully commercialize our DFI system, our future market opportunity and revenues will suffer, and our costs may not be recouped. |
| ● | We are required to comply with governmental export and import requirements that could subject us to liability and restrict our ability to sell our products and services, which could impair our ability to compete in international markets. |
| ● | Decreases in wafer volumes at our customers’ manufacturing sites or the volume of ICs that some of our customers are able to sell to their customers would cause our Integrated Yield Ramp revenue to suffer. |
| ● | We acquired an early-stage battery-solutions provider and have been investing in research and development for new products and services beyond our traditional semiconductor focus, and it could take a long time to reach market acceptance and recoup our costs, if at all. |
| ● | Our success depends upon our ability to effectively plan and manage our resources and restructure our business through rapidly fluctuating economic and market conditions, which actions may have an adverse effect on our financial and operating results. |
| ● | Our business may be negatively impacted by social, political, geopolitical, economic instability, unrest, war, terrorism, or other circumstances that could interrupt our business operations, which could cause us to lose sales or delay or be unable to fulfill contractual commitments, which may have an adverse effect on our financial and operating results. |
| ● | Global economic conditions or semiconductor market conditions could materially adversely impact demand for our products and services, decrease our sales, or delay our sales cycle. |
| ● | We face challenges in providing a comprehensive solution outside of the semiconductor industry due to limitations on the business areas in which we can use current third-party licensed technology, which may make it prohibitively expensive to sell our solution for applications outside of our traditional industry. |
Risks Related to Our Technology | ● | If we fail to protect our IP rights, customers or potential competitors may be able to use our technologies to develop their own solutions, which could weaken our competitive position, reduce our revenues, or increase our costs. |
| ● | We are exposed to risks related to information technology infrastructure, information management and protection, cybersecurity threats, and cyber incidents. |
| ● | We and our customers are subject to laws and regulations concerning data privacy, data security, consumer protection, and advertising and these laws and regulations are continually evolving, which exposes us to potential material risks. |
| ● | Our technologies could infringe the IP rights of others, causing costly litigation and the loss of significant rights. |
| ● | Competition in the market for data analytics and related systems and services may intensify in the future, which could impede our ability to grow or execute our strategy. |
| ● | Generative AI and the user other advanced AI technologies for software development may subject us to claims of misappropriation of others’ IP, bugs/errors, and ambiguous ownership of created content. |
Risks Related to Our Operations | ● | Measurement of our variable consideration sometimes require data collection and customers’ use of estimates and are contingent upon customers’ consent and may be later offset if actual data differ from customers’ estimates, which can result in uncertainty and cause quarterly results to fluctuate. |
| ● | We have customers with past due balances and our failure to collect a significant portion of such balances could adversely affect our cash, require us to write-off receivables, or increase our expense or allowance for credit losses. |
| ● | We face operational and financial risks associated with international operations that could negatively impact our revenues. |
| ● | Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to ESG matters that could expose us to numerous risks. |
| ● | Provision of certain of our data services relies on installing, configuring, and operating proprietary configuration of hardware and software systems located in third-party facilities and errors affecting such facilities’ operations could lead to liability for us, and any objection from such third-party facility or delay in providing us physical or logical access to our systems may adversely impact our ability to timely perform our contract obligations or lead to confidentiality, integrity, availability, security, or privacy controls exceptions. |
Tax Risks | ● | U.S. federal tax reform and changes in foreign tax laws could change our tax burden and adversely affect our business and financial condition. |
| ● | Future events may impact our deferred tax asset position, including the utilization of net operating loss and tax credit carryforwards. |
Risks Related to Our Strategic Transactions | ● | We may devote significant time and resources to developing strategic relationships but we may not realize the benefits of such efforts, which could have an adverse effect on our business and results of operations. |
| ● | Our acquisitions create special risks and challenges that could adversely affect our financial results. |
General Risk Factors | ● | If we are not able to retain, attract, motivate, and strategically locate talented employees, including some key executives, our business may suffer. |
| ● | Our earnings per share and other operating results may vary quarter to quarter, which could result in not meeting investors’ expectations and stock price volatility. |
| ● | Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of our securities. |
Risks Associated with Our Business We investhave invested significant resources into research and development to pursue new product and technology initiatives, includingof our DFI system and Exensio platform,software and if we invest more resources in research and development than anticipated or fail to successfully carry out these initiatives on the expected timeline or at all, our business, financial condition, or results of operations could be adversely impacted. As part of the evolution of our business, we have made substantial investments in research and development efforts to develop new products, including our DFI system and Exensio cloud-based platform, as well continued investment to enhance existing products.software. New competitors, technological advances in the semiconductor industry or by competitors, our entry into new markets, or other competitive factors may require us to further invest significantly greater resources than we anticipate. If we are required to invest significantly greater resources than anticipated without a corresponding increase in revenue, our operating results could decline. The technologies orand products that we invest in may later not be sought after by semiconductor companies. In this event,result in products that create additional revenue, and we would may not recoup our investment andinvestments, which could cause our results wouldto suffer. If we are unable toour DFI system and Exensio software do not anticipate technological changes in our industry by introducing new or enhanced products in a timely and cost-effective manner, or if we fail to introduce products that meet market demand, we may not capture the market share we anticipate, we may lose our competitive position, our products may become obsolete, and our business, financial condition or results of operations could be adversely affected. Additionally, our periodic research and development expenses may be independent of our level of revenue, which could negatively impact our financial results. Our sales cycle is lengthy and customers may delay entering into contracts or decide not to adopt our products or solutions after we have performed services or supported their evaluation by them of our technology, which could result in delays in recognizing revenue and could negatively impact our results of operations in a quarter or result in lower revenue than we expected if a contract is not consummated at all. consummated. On-going negotiations and evaluation projects for new products, with new customers or in new markets may not result in significant revenues for us if we are unable to close new engagements on terms favorable to us, in a timely manner, or at all. Unexpected delays in our sales cycle could cause our revenues to fall short of expectations. Further, the timing and length of negotiations required to enter into agreements with our customers and the ultimate enforcement of our complex negotiated contractual provisions as we intended is difficult to predict. If we do not successfully negotiate certain key complex contractual provisions, if there are disputes regarding such provisions, or if they are not enforceable as we intended, our revenues and results of operations would suffer. Further, our customers sometimes delay starting negotiations until they begin developing a new process, have a need to insertfor a new product, or experience specific yield issues. This means that, on occasion we have, and may continue to provide technology and services under preliminary documentation before executing the final contract. In these cases, we would not recognize revenue and may defer associated costs until execution of thea final contract, which, if significant, could negatively impact our results of operations in the periods before we execute thea final contract. Further, if we were to incur significant effortcosts and then fail to enter into a final contract, we would have to write-off such deferred costs in the period in which the negotiations ended, which would decreaseincrease our costs and expenses and could result in significant operating losses. We rely on sole-source providers for certain software as well as for specialized parts for our eProbe hardware and supply-chain delays or disruptions could increase our costs or impact our ability to provide complete software solutions or to build additional hardware tools or meet customer expectations or deadlines, which could result in lost sales and lower earnings. We provide some enabling technology under license and support from sole-source providers and some of our vendors provide highly specialized, differentiated products and services related to our eProbe system. In the event these licensors or vendors delay or discontinue providing such products and services to us, it may be difficult and costly or impossible for us to replace such suppliers or parts. In the case of licensed software, this could impact our ability to grow our sales or to meet the support expectations of our customers and we may need to resort to legal action, which could limit our future sales, harm our reputation, increase our costs, and harm our earnings. For example, in November 2023, a provider of enabling technology abruptly stopped providing maintenance and support of their software product to us. As a result, we resorted to legal action, which caused us to incur increased legal expenses beginning in the fourth quarter of 2023. The matter is ongoing, and the long-term impact of this provider’s actions on our business and our customers is unknown at this time. In the case of vendors related to our eProbe tool, such disruptions or delays could delay or stop our ability to complete and deliver our DFI systems as currently designed to our customers, which would negatively impact our bookings and revenue related to such systems. In addition, such delays or disruptions to our supply chain could significantly increase our component costs, or personnel-related costs if we need to build a replacement solution in the case of certain software elements, and could impact our ability to build future generations or models of our eProbe tools, any of which would decrease or delay our sales, earnings, and liquidity and could otherwise adversely affect our business and result in increased costs. Such a delay or disruption could occur as a result of any number of events, including, but not limited to: failure to comply with existing contracts, higher priority alternative buyers, inflation and global interest rates increasing component costs, a closure or slowdown at our suppliers’ plants or shipping delays including, for example, those made to combat the spread of COVID-19, market shortages for critical components, increases in prices, the imposition of regulations, quotas, embargoes or tariffs on components or our products, labor stoppages or shortages, our suppliers’ supply chain disruptions, third-party interference, cyberattacks, severe weather conditions including the adverse effects of climate change-related events, geopolitical developments, war or terrorism, and disruptions in utilities and other services. In addition, the development, licensing, or acquisition of new products in the future may increase the complexity of supply chain management. Failure to effectively manage our supply of components and products could adversely affect our business. Our fixed-fee services orfor product or system installation/installations/configurations may take longer than budgeted, which could slow our revenue recognition and may also result in a losslost contract or a claim of breach by our customers, which would negatively affect our financial and operating results. Our fixed-fee services, including in particular IYR,for Characterization, require a team of engineers to collaborate with our customers to address complex issues by using our software and other technologies, and the installation and configuration of our software into our customers’ fabrication and test/assembly facilities requires experienced engineers working with our customers on active foundry and test/assembly equipment. We must accurately estimate the amount of time and resources needed to complete both of these types of services in order to estimatedetermine when the engineers will be able to commence thetheir next engagement. In addition, our accounting for contracts with such services, which generate fixed fees, sometimes requires adjustments to profit (loss)and loss based on revised estimates during the performance of the contract. These adjustments may have a material effect on our results of operations in the period in which they are made. The estimates giving rise to these risks, which are inherent in fixed-price contracts, include the forecasting of costs and schedules, and contract revenues related to contract performance.If we significantly fail to meet a customer’s expectations, in either case, the customer could terminate their contract with us or claim that we breached our obligations, which could result in lost revenuenegatively affect our financial and increased expenses.operating results. Our ability to sell our products, systems, and solutions depends in part on the quality of our support and services offerings, and the failure to offer high-quality support and services could negatively affect our sales and results of operations. Once our products are integrated within our customers’ hardware and software systems, our customers may depend on our support organization to resolve any issues relating to our products. Further, in connection with delivering our SaaS Services, which requires us to maintain adequate server hardware and internet infrastructure, including system redundancies, we are required to meet contractual uptime obligations. A high level of system and support is critical for the successful marketing and sale of our products. If we do not effectively provide subscription access to our SaaS customers, assist our customers in deploying our products, succeed in helping our customers quickly resolve post-deployment issues, and provide effective ongoingon-going support and the privacy and data security capabilities required by our customers, we may face contractual penalties or customers may not renew subscriptions or services in the future, which would negatively impact our results of operations. In addition, due to our international operations, our system and support organization faces challenges associated with delivering support, hours that support is available, training, and documentation where the user’s native language may not be English. If we fail to maintain high-quality support and services andor fail to adequately address our customers’ support needs, our customers may choose our competitors’ products instead of ours in the future, which would negatively affect our revenues and results of operations. Defects in our proprietary technologies, hardware and software tools, and failure to effectively remedy any such defects could decrease our revenue and our competitive market share. If the software, hardware, or proprietary technologies we provide to customers contain defects that negatively impact customers'customers’ ability to use our systems or software, increase our customers’ cost of goods sold andor time-to-market, or damage our customers’ property, thesesuch defects could significantly decrease the market acceptance of our products and services or resultscould result in warranty or other claims. We must adequately train our new personnel, especially our customer service and technical support personnel, to effectively and accurately, respond to and support our customers. If we fail to do this, it could lead to dissatisfaction among our customers, which could slow our growth. Further, the cost of support resources required to remedy any defects in our technologies, hardware, or software tools could exceed our expectations. We have and may further incorporate AI solutions and related technologies for use in product development, or into our platform, offerings, services and features, and these applications may become important in our operations over time. If the content, analyses, recommendations, or other output that AI applications assist in producing are or are alleged to be deficient, inaccurate, or imprecise, our business, financial condition, and results of operations may be adversely affected. Any actual or perceived defects with our software, hardware, or proprietary technologies may also hinder our ability to attract or retain industry partners or customers, leading to a decrease in our revenue. These defects are frequently found during the period following introduction of new software, hardware, or proprietary technologies or enhancements to existing software, hardware, or proprietary technologies, which means that we may not discover the errors or defects until after customer implementation of the silicon design and manufacturing process recommended by us.implementation. If our software, hardware, or proprietary technologies contain errors or defects, it could require us to expend significant resources to remedy these problems or defend/indemnify claims, which could reduce margins and result in the diversion of technical and other resources from our other customer implementations and development efforts. InadvertentObjectionable disclosure of our customers’ confidential information or our failure to comply with our customers’ security rules, including for cloud-based solutionsthose related to SaaS access, AI use, or our on-site access, could result in costly litigation, cause us to lose existing and potential customers, or negatively impact on-going business with existing customers.
In the ordinary course of providing SaaS or other services engagements, we may collect customers’ product, process, and test information, personally-identifiable data about their employees needed to administer licenses, and other confidential information. Our customers consider their product yieldmost of this information and other confidential information, which we must collect in the course of our engagement with the customer or through our software tools, to be extremely competitively sensitive or subjectand, in some cases, require us to comply with strict protection frameworks, including data and personal data about our customers’ employees necessary to administer the licenses. Many of our customers have strict security rules for on-site or remote access to, hosting of, or hosting, totransfer of their confidential information. IfAs a result of increased regulatory and customer scrutiny of all data processing activities, as well as increasing and evolving regulation of such practices, we suffered an unauthorized intrusion orhave security obligations on how we inadvertently disclosed or were requiredcollect, transfer and use data (including personal data), which could require us to disclose this information, orexpend money and resources to comply with those requirements, and if compromised again, could have a material adverse effect on our business, financial condition, and results of operations, including the potential for regulatory investigations, enforcement actions, lawsuits, and a loss of business and a degradation of our reputation. If we fail to adequately comply with customers’ security protocols for accessing or hosting confidential information, we could lose existingimplement industry standard protections and processing procedures, the growing awareness of our customers and potential customers regarding privacy and data security requirements and/or be subject to costly penaltiesadverse media coverage or litigation, orregulatory scrutiny could limit the use and adoption of our on-going business could be negatively impacted and insurance to cover such situations may not fully cover our exposure.services. In addition, to avoid potential disclosure of confidential information to competitors, some of our customers may, in the future, ask us not to work with key products or processes, which could limit our revenue opportunities. We recently started using third party AI/ML systems for research and development purposes. If these third-party AI/ML systems misuse or fail to properly protect the data we input, our use of such AI systems may result in the unauthorized disclosure of sensitive, proprietary, or confidential information belonging to us or our customers. For example, if the information we input into a third-party AI/ML system is used to train the underlying AI/ML models, such inputs could be revealed to others. The third-party AI/ML system may also provide outputs that appear to be correct but are incomplete, inaccurate, or otherwise flawed and may lead us to make erroneous decisions or recommendations to customers, which could result in harm to our reputation and competitive position, customer loss, and legal liability. We generate a significant portion of our revenues from a limited number of customers, and a large percentage of our revenues from a singleone customer, so defaults or decreased business with, or the loss of, any one of these customers, or pricing pressure, or customer consolidation could significantly reduce our revenues or margins and negatively impact results of operations. Historically, we have had a small number of large customers for our IYR solutions and that contribute significant Gainshare royalties.revenues. In the year ended December 31, 2020,2023, one customer GlobalFoundries, accounted for 23%35% of our total revenues. We have in the past and could in the future lose a customer due to its decision not to develop or produce its own future process node. Customers could also choosenode or not to not engage us on future process nodes, or reduce the scope of our services or technology under contract (which is permitted in one of our customer contracts if the customer’s business materially adversely changes).Wenodes. We could also lose customers as a result of industry factors, including but not limited to reduced manufacturing volume or consolidation. Consolidation among our customers could also lead to increased customer bargaining power, or reduced customer spending on software and services. Further, new business may be delayed or prevented if a key customer uses its leverage to push for terms that are worse for us and we delay entering into the contract to negotiate for better terms or decide not to enter into the contract at all, in which case revenue in any particular quarter or year may fail to meet expectations. Also, the loss of any of these customers or the failure to secure new contracts with these customers could further increaseexpectations and our reliance on our remaining customers. customers could increase.
Further, if any of our key customers default, declare bankruptcy or otherwise delay or fail to pay amounts owed, or we otherwise have a dispute with any of these customers, our results of operations would be negatively affected in the short term and possibly the long term. For example, in 2020,2023, 2022 and 2021, we incurred expenses in the amount of $1.1$2.6 million, $1.9 million and $2.0 million, respectively, related to the arbitration with SMIC New Technology Research & Development (Shanghai) Corporation due to SMIC’s failure to pay fees due to us under a series of contracts. IfIn 2024, we are not ablemay continue to resolve this matter amicably in the near future, we will incur substantial additional expenses related to resolutionan arbitration hearing to resolve this matter. The loss of this matter through arbitration. These events couldrevenue from any of our key customers would cause significant fluctuations in results of operations because our expenses are fixed in the short term and it takes us a long time to replace customers or reassign resources. If we do not continuously meet our development milestones of key research and development projects or successfully commercialize our Design-for-Inspection DFI system, our future market opportunity and revenues will suffer, and our costs may not be recouped. Certain use cases of our DFI system remain to be proven. To date, weWe have invested significantly in the design and development of our eProbe tool and related intellectual property.IP. Key customers failing to purchase, renew, or expand the number or use of such systems on our expected timeline or at all will cause our results to miss expectations. For example, in 2020, a key DFI customer decided not to continue with contractual milestones or to renew the eProbe for our standard DFI application at the expiration of the contract, which resulted in lower DFI-related revenue in 2020. Also, if the results of our DFI system, including new applications, are not as we expect, we may not be able to successfully commercialize this system or such applications on schedule, or at all, and we may miss the market opportunity and not recoup our investment. Further, our eProbe tool could cause unexpected damage to wafers or delay processing wafers, which we could be liable for, or which could make customers unwilling to use it.the tool. If we are not able to create significant interest and show reliable and useful results without significant damage to wafers, our investment may not be recouped and our future results may suffer.
We are required to comply with governmental export and import requirements that could subject us to liability and restrict our ability to sell our products and services, which could impair our ability to compete in international markets. We are required to comply with export controls and economic sanctions laws and regulations that restrict selling, shipping, or transmitting our products and services and transferring our technology outside the United States. These requirements also restrict domestic release of software and technology to foreign nationals. In addition, we are subject to customs and other import requirements that regulate imports that are important for our business. If we fail to comply with the U.S. Export Administration Regulations (“EAR”) or other U.S. or non-U.S. export or economic sanctions laws and regulations (collectively, “Export Regulations”), we could be subject to substantial civil and criminal penalties, including fines for the Company and the possible loss of the ability to engage in exporting and other international transactions. Due to the nature of our business and technology, Export Regulations may also subject us to governmental inquiries regarding transactions between us and certain foreign entities. Export Regulations are fluid, complex, and uncertain, and there are ongoing efforts throughout the industry in coordination with regulators to revise, clarify, and interpret Export Regulations. The U.S. Congress and regulators continue to consider significant changes in laws and regulations. For example, the U.S. government is reportedly considering whether and/or how to impose restrictions directly on cloud-hosted services and further restrictions directly on U.S. person activity. We cannot predict the impact that additional legal changes may have on our business in the future. For example, in October 2022 the U.S. Bureau of Industry and Security (“BIS”) promulgated broad, novel Export Regulations relating to China that temporarily caused us to pause some deliveries while we interpreted the application of the new regulations on our business, given current and evolving operations. Also, BIS has placed certain entities on its entity list (the “Entity List”), which restricts supply of items to or in connection with the named entities. Further, in some circumstances Export Regulations require a license to export an item if the recipient will use the item to design or produce an item for a Huawei-affiliated company or certain other organizations on the Entity List. These regulations can also require licenses for exports that involve Chinese military or intelligence-related end users or end uses. Future changes in Export Regulations, including changes in the enforcement and scope of such regulations, may create delays in the introduction of our products or services in international markets or could prevent our customers with international operations from deploying our products or services globally. In some cases, such changes could prevent the export of our products or services to certain countries, governments, entities or individuals altogether. Any such delays or restrictions could adversely affect our business, financial condition and results of operations. For further discussion, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Decreases in wafer volumes at our customers’ manufacturing sites or the volume of ICs that some of our customers are ableto sell to their customers would cause our Integrated Yield Ramp revenue to suffer. Our Integrated Yield Ramp revenue includes amounts largely determined by variable wafer volumes at manufacturing sites covered by our contracts and, in some cases, determined by the volume of an IC product that our customer is able to sell to its customers. Both of these factors are outside of our control. We have seen a significant reduction in our Integrated Yield Ramp revenue in recent years and expect this trend to continue. Further, some of our manufacturing customers’ business is largely dependent on customers that use our manufacturing customer as a second or third source. If those customers consolidate and/or otherwise move the orders to manufacturing facilities not covered by our contracts, or suspend their manufacturing at covered facilities for any reason, including consolidation, our Integrated Yield Ramp revenue will continue to decrease, which could cause us to fail to meet expectations.negatively affect our financial results. Further, reduced demand for semiconductor products or protectionist policies like those stemming from the complex relationships among China, Hong Kong, Taiwan, and the United States has from time to time decreased and may continue to decrease the volume of wafers and, in some cases, products our customers are able to make or sell, which would also decrease our Integrated Yield Ramp revenue. Also, our customers may unilaterally decide to implement changes to their manufacturing processes during the period that volume is covered by royalty contracts, which could negatively affect yield results and, thus, our Integrated Yield Ramp revenue. Since we currently work on a small number of large projects at specified manufacturing sites and, in some cases, on specific IC products, our results of operations have been and may continue to be adversely affected by negative changes at those sites or in those products, including slowdowns in manufacturing due to external factors, such as U.S. trade restrictions, rising inflation and the impact of the COVID-19 pandemic in China.global interest rates, or continued or worsening supply chain disruptions. Also, if wafer orders from sites covered by our contracts are not secured by our customers, if an end product does not achieve commercial viability, if a process line or, in some cases, a specific product, does not achieve significant increases in yield or sustain significant volume manufacturing during the time we receive royalties, revenues associated with such volumes or products would be negatively impacted. This could significantly reduce our Integrated Yield Ramp revenue and our results of operations could fail to meet expectations. In addition, if we work with two directly competitive manufacturing facilities or products, volume in one may offset volume, and thus any of our related revenue, in the other facility or product. We acquired an early-stage battery-solutions provider and have been investing in research and development for new products and services beyond our traditional semiconductor focus, and it could take a long time to reach market acceptance and recoup our costs, if at all. our existing products and services to battery manufacturers. If we do not create products and services battery manufacturers desire, we may not be able to successfully commercialize our solutions for battery manufacturing on schedule, or at all. In this case, we may miss the market opportunity, which would mean lower sales than we expect, the loss of our investments in battery manufacturing solutions, which would mean lower earnings. Our success depends upon our ability to effectively plan and manage our resources and restructure our business through rapidly fluctuating economic and market conditions, which actions may have an adverse effect on our financial and operating results. Our ability to successfully offer our products and services in a rapidly evolving market requires an effective planning, forecasting, and management process to enable us to effectivelyappropriately scale and adjust our business and business models in response to fluctuating market opportunities and conditions, which has in the past and could in the future continue to require us to increase headcount, acquire new companies or engage in restructurings from time to time. For example, while we have increased investment in our business by for example, increasing headcount, acquiring companies, and increasing our investment in R&D,research and development, sales and marketing, and other parts of our business from time to time, including 2018,at other times we initiated ahave undertaken restructuring planinitiatives to reduce expenses and align our operations with our evolving business needs. Some of our expenses related to such efforts are fixed costs that cannot be rapidly or easily adjusted in response to fluctuations in our business or numbers of employees.headcount. Rapid changes in the size, alignment or organization of our workforce, including sales account coverage, could adversely affect our ability to develop and deliver products and services as planned or impair our ability to realize our current or future business and financial objectives. Our ability to achievecapitalize on the anticipatedmarket opportunity and achieve cost savings and other benefits from our restructuring initiatives within the expected time frame requires significant management input and leadership and is subject to many estimates and assumptions, which are subject to significant economic, competitive and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, ifand we are unsuccessful at implementing changes, or if other unforeseen events occur, our business and results of operations could be adversely affected. Our business may be negatively impacted by social, political, geopolitical, economic instability, unrest, war, terrorism, or other circumstances that could interrupt our business operations, which could cause us to lose sales or delay or be unable to fulfill contractual commitments, which may have an adverse effect on our financial and operating results. Our business operations may be negatively impacted by social, political, economic instability, unrest, war, terrorism, or other circumstances in a region in which we operate. Such events may result in restrictions, curfews, or other actions and give rise to significant changes in regional and global economic conditions and cycles, which may adversely affect our financial and operating results. Further geopolitical uncertainties, including relations between the United States and each of China and Russia, between Israel and Palestine, social activism, economic instability, war, terrorism, or other circumstances that interrupt our ability to conduct business could cause damage to, disrupt, or cancel sales of our products and services on a global or regional basis, which could have a material adverse effect on our business or vendors with which we do business. Due to the significance of our China market for our profit and growth, we are exposed to risks in China, including the risks mentioned elsewhere and the following: the effects of current U.S.-China relations, including rounds of tariff increases and retaliations and increasing restrictive regulations, potential boycotts and increasing anti-Americanism; escalating U.S.-China tension and increasing political sensitivities in China; the effects of China government funding in the development of domestic solutions and customer preference for domestic suppliers creating additional competition in China; and unexpected governmental regulations and restrictions in China as a result of renewed efforts to contain the COVID-19 pandemic, which could negatively impact our local operations. Such events could also make it difficult or impossible for us to deliver products and services to our customers. In addition, territorial invasions can lead to cybersecurity attacks on technology companies, such as ours, located far outside of the conflict zone. We do not have a business continuity plan developed to account for all continuity risks (please see Item 1C. Cybersecurity for more information about our cybersecurity risk management program). In the event of prolonged business interruptions or negative broad economic and security conditions due to political, geopolitical events, we could incur significant losses, require substantial recovery time, and experience significant expenditures in order to resume our business operations. In addition, our insurance policies typically contain a war exclusion of some description and we do not know how our insurers are likely to respond in the event of a loss alleged to have been caused by geopolitical uncertainties. Global economic conditions or semiconductor market conditions could materially adversely impact demand for our products and services, decrease our sales, or delay our sales cycle. Our customers are global semiconductor companies, which means that our operations and performance depend significantly on worldwide economic conditions as well as semiconductor market specific changes. Uncertainty about global economic conditions including war, terrorism, geopolitical uncertainties and other business interruptions could result in customers postponing purchasesdamage to, disruption, postponement or cancellation of sales of our products andor services including in response toon a global or regional basis. Furthermore, tighter credit, higher interest rates, inflationary concerns, large-scale unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors which could have a material negativeadverse effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition.condition and/or vendors with which we do business. For example, the timing of the build-out of the semiconductor market in China depends significantly on governmental funding on both local and national levels and a delay in this funding could negatively affect our revenues. For further example,Further, any economic and political uncertainty caused by the United States tariffs imposed on goods from China or enhanced U.S. export regulations relating to China, among other potential countries, and any corresponding tariffs from China or such other countries in response, may negatively impact demand and/or increase the cost for our products. Similarly, the COVID-19 pandemic in China or in other nations has and may continue to cause a slowdown in the global economy and demand for our products and services. Further, the semiconductor industry historically has been volatile with up cycles and down cycles, due to sudden changes in customers’ manufacturing capacity requirements and spending, which depend in part on capacity utilization, demand for customers’ IC products by consumers, inventory levels relative to demand, and access to affordable capital. As a result of the various factors that affect this volatility, the timing and length of any cycles can be difficult to predict and could be longer than anticipated. Any of these events could negatively affect our revenues and make it challenging or impossible for us to deliver products and services to our customers forecast our operating results, make business decisions, and identify the risks that may affect our business, financial condition and results of operations. Customers with liquidity issues may also lead to additional bad debt expense.credit losses. We face challenges in providing a comprehensive solution outside of the semiconductor industry due to limitations on the business areas in which we can use current third-party licensed technology, which may make it prohibitively expensive to sell our solution for applications outside of our traditional industry. Since our software requires certain third-party programs to run as intended and some of our contracts with licensors limit the industry in which we can resell such third-party programs, we face challenges to provide a comprehensive solution to battery manufacturers. If we or our customers are unable to procure required third-party programs that can be used in connection with our products for battery manufacturing, or the cost to do so is higher than expected, we may miss the market opportunity, which would mean lower sales than expected, or our costs may be higher, which would mean lower earnings than expected. Risks Related to Our Technology If we fail to protect our intellectual propertyIP rights, customers or potentialcompetitors may be able to use our technologies to develop their own solutions, whichcould weaken our competitive position, reduce our revenues, or increase our costs. Our success depends largely on the proprietary natureprotection of our technologies.proprietary technology. Our contractual, patent, copyright, trademark, and trade secret protection may not be effective against any particular threat or in any particular location. Our pending patent applications may not result in issued patents, and even if issued, they may not be sufficiently broad to protect our proprietary technologies. Some foreign countries do not currently provide effective legal protection for intellectual propertyIP and our ability to prevent the unauthorized use of our products in those countries is therefore limited. Our trade secrets may also be stolen, otherwise become known, or be independently developed by competitors. Litigation may be necessary from time to time to enforce our IP rights. As a result of any such litigation, we could lose our proprietary rights and incur substantial unexpected operating costs. Litigation could also divert our resources, including our managerial and engineering resources. If we are unable to exclude others from using our proprietary technologies and methods without compensation to us, through litigation or otherwise, it could impede our ability to grow our business and our revenues may suffer. We are exposed to risks related to information technology infrastructure, information management and protection, cybersecurity threats, and cyber incidents. We are heavily reliant on our technology and infrastructure, as well as the public cloud to an increasing degree, to provide our products and services to our customers. Additionally, we must frequently expand our internal information system to meet increasing demand in storage, computing and communication, which may result in increased costs. Our internal information system is expensive to expand and must be highly secure due to the sensitive nature of our customers’ information that we transmit. Building and managing the support necessary for our growth places significant demands on our management and resources. These demands may divert these resources from the continued growth of our business and implementation of our business strategy. Bad actors may make increased use of widely available access to generative AI technology, such as ChatGPT, for more sophisticated and frequent cyber-attacks or fraudulent impersonations against us. These attacks could come from either Advanced Persistent Threat actors or other individual organized or unorganized malicious actors. The expense to purchase, update, and configure security information systems to detect and/or neutralize increasingly complex and sophisticated attacks may increase our costs and, failure to acquire the right expertise or systems may leave us vulnerable to attacks, which could expose our confidential or competitive information or that of our customers, which could expose us to liability and have a negative impact on our reputation and business opportunity. We rely on third-party service providers to enable key services to our customers, including for cloud services, enterprise software, customer support portal software, and co-location computing facilities. We have experienced in the past, and may experience in the future, interruptions in our information systems on which our global operations depend. We may in the future experiencedepend or unplanned downtime of the infrastructure that delivers our SaaS. Such an unplanned interruption, even if temporary, could stop SaaS products. Further,customers from accessing their hosted data or on-premise customers from downloading licensed software or critical security patches, or from accessing our support portal, which could mean that we may face attempts by othersnot meet our contractual commitments for such services to gaincustomers, which could reduce our revenue, incur liability, or result in damage to our reputation and negatively impact future sales. Further, the information technology and infrastructure that stores and processes our and our customers’ data is susceptible to continually evolving cybersecurity threats that become more complex over time, especially with the rapid evolution of AI technologies, and may not be recognized until launched against a target, all of which could result in unauthorized access through the Internet to, or acquisition of, our information technology systems whether hosted by usdata, and interruption or disruption of our business. We and our third-party service providers, to intentionally hack, interfere with or cause physical or digital damage to or failure of such systems (such as significant viruses or worms), which attemptswhom we or theymay share data, may be unable to prevent. Ouranticipate these techniques or may not implement adequate preventative measures to prevent either unauthorized access to our systems or services that could compromise customer data or other confidential information or result in a disruption of our services. In particular, like our peers, we are often the target of cyber-attacks by third parties seeking unauthorized access to confidential or sensitive data, including customer confidential information, or to disrupt our ability to provide services from a broad range of threat actors, including foreign governments, criminals, competitors, computer hackers, cyber terrorists and politically motivated groups or individuals. To date, we have not incurred any material costs from these attacks. The security measures we have integrated into our internal systems, SaaS, and software products, which are designed to detect unauthorized intrusions or activity and prevent or minimize security breaches, vary in maturity across our business and may alsonot function as expected or may not be breachedsufficient to protect against certain attacks. Additionally, we may not have sufficient audit logs to fully understand the nature of a cyber-attack. In some cases, we do not have contracts to provide legal protection or recourse for breaches of our security protections, which may increase our exposure to expenses related to such attacks and negatively impact our results. Ransomware attacks are becoming increasingly prevalent and severe, and can lead to significant interruptions in our operations, loss of data and income, reputational loss, diversion of funds, and may result in fines, litigation and unwanted media attention. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, employee errors, malfeasance,for example, applicable laws or otherwise. Despiteregulations prohibiting payments. Territorial invasions like Russia’s invasion of Ukraine or other geopolitical events can lead to cybersecurity attacks on technology companies, such as ours, located far outside of the conflict zone. In the event of prolonged business interruptions due to a security breach or disruption, we could incur significant losses, require substantial recovery time and experience significant expenditures in order to resume our ongoing efforts to enhance our network security measures, ourbusiness operations. Our information systems are susceptible to computer viruses, cyber-related security breaches, and similar disruptions from unauthorized intrusions, tampering, misuse, criminal acts including phishing, or other events or developments that we may be unable to anticipate or fail to mitigate and are subject to the inherent vulnerabilities of networkmitigate. Our security measures. For example, in the first quarter of 2020, one of our cloud installations suffered an intrusionmeasures may also be circumvented or bypassed due to a vulnerability discovered and published by the provider of the Citrix ADC that was part of our installation.employee errors or malfeasance. Third parties may also attempt to influencefraudulently induce employees users, suppliers or customers to disclose sensitive information in order to gain access to our data or our customers’ data, including account credentials, customer personnel information, or business partners’ data. Additionally, third parties with whomother information. If we work, such as vendorsfail to have adequate controls or developers, may violate applicable laws or our policies and such violations can place personal informationsafeguards, the security of our customers at risk. Weinternal networks, electronic systems, or our service providersphysical facilities could be unawarecompromised, which could result in significant legal and financial exposure, a loss of an incidentconfidence in the security of our SaaS and other software products, interruptions, or its magnitudemalfunctions in our operations, account lock outs, and, effects until after it is too lateultimately, harm to prevent itour business, financial condition and results of operations. We face information technology security and fraud risks due to continued support of our employee’s remote or hybrid work environment, which may create additional information security vulnerabilities and/or magnify the damage itimpact of any disruption in our information technology systems. Our increased reliance on work-from-anywhere technologies and even our employees’ expanded reliance on company-approved bring-your-own-mobile-devices may cause. Further, becauseincrease the techniques used to obtain unauthorized access to the informationrisk of cybersecurity or data breaches from possible circumvention of security and monitoring systems, change frequently, anddenial-of-service attacks or other cyber-attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, employee or insider error, malfeasance, social engineering, deep-fake impersonations, physical breaches, or other actions. Our insurance policies may not be recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. The theft, unauthorized use, or a cybersecurity attack that resultscover losses incurred in the publication of our trade secrets and other confidential business information as a result of such an incident could negatively affect our competitive position, the value of our investment in product or research and development, and third parties might assert against us or our customers claims related to resulting losses of confidential or proprietary information or end-user data and/or system reliability. We carry insurance that provides some protection against the potential losses arising from a cybersecurity incident, but it will not likely cover all such losses, and the losses that it does not cover may be significant. In any such event our businesssystems or data are comprised, and they are subject to retention amounts that could be subjectsubstantial. Moreover, we cannot be certain that such insurance policies will continue to significant disruption, which could impact our revenues or cause customers to cease doing business with us, and we could suffer monetary and other losses, including reputational harm, which costs we may not be able to recover from our service providers. Our operations are dependent upon our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations.
Our technologies could infringe the intellectual property rights of others, causingcostly litigation and the loss of significant rights.
Significant litigation regarding intellectual property rights exists in the semiconductor industry. It is possible that a third party may claim that our technologies infringe their intellectual property rights or misappropriate their trade secrets. For example, in late 2020, Ocean Semiconductor LLP (“Ocean”) filed complaints against a number of semiconductor companies in the United States, including a number of our customers, alleging that the importation of IC devices made overseas on a process that, in some cases, included our software, infringed U.S. patents owned by Ocean. By way of further example, in 2019, one of our Exensio customers notified us that they had been named in a lawsuit alleging, among other things, that their use of Exensio Control Distributed infringed the patent of a third party. Any claim, even if without merit, could be time consuming to defend, result in costly litigation, or require us to enter into royalty or licensing agreements, which may not be available to us on acceptableeconomically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
Many of our customers and our technical partners require us to complete annual vendor security assessments which may include a requirement to complete information security self-assessments, third-party assessments, or obtain independent certifications from standards organizations. Any exception of controls found during such assessments or certification, especially if published in a report such as for SOC 2 Type 2, may need to be disclosed to a large number of customers and potential customers. Such publication of controls weaknesses could adversely affectcause customers to re-evaluate their purchasing or renewal decisions, which could cause us to lose sales and, as a result, have lower earnings than expected. Part of our salesbusiness includes the acquisition of other companies which involves the integration of various business processes, technologies, and data systems. While such acquisitions offer strategic opportunities expenses,for growth and revenues.diversification, they also expose us to cybersecurity risks that may arise during the integration process and thereafter. Challenges in integrating information technology systems and networks may create vulnerabilities and expose the organization to unauthorized access and data breaches. The transfer and consolidation of sensitive information during acquisitions heighten data security and privacy concerns, potentially leading to regulatory compliance issues and reputational damage. Third-party relationships established by the acquired company introduce additional cybersecurity risks if not properly assessed and mitigated. Moreover, cultural differences, compliance obligations, and resource constraints further complicate the effective management of cybersecurity risks associated with acquisitions, potentially impacting the organization's financial performance and reputation. If we experience a security event, we may have to conduct an investigation and notify individuals, customers, partners, service providers and state, federal and local governmental authorities and regulators in the U.S. and elsewhere around the globe. Accordingly, security events could lead to significant costs and fees for legal advice, investigation support, remediation, and result in legal risk exposure, damage and harm to our reputation, and impact on our ability to keep and attract customers. In addition, weWe and our customers are subject to laws and regulations concerning data privacy, data security, consumer protection, and advertising and these laws and regulations are continually evolving, which exposes us to potential material risks.
We collect, use, store or disclose (collectively, “process”) an increasingly large amount of personal information, including from employees and customers, in connection with the operation of our business. The personal information we process is subject to an increasing number of federal, state, local and foreign laws regarding privacy and data security, as well as contractual commitments. Any failure or perceived failure by us to comply with such obligations may result in governmental enforcement actions, fines, litigation, or public statements against us by consumer advocacy groups or others and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business. Additionally, changes In the United States, we are subject to applicablenumerous federal, state and local data privacy and security laws and regulations governing the processing of information about individuals, including federal laws (e.g., FTC Act) and state privacy laws (e.g., the California Privacy rights Act and the Virginia Consumer Data Protection Act), marketing and communications laws, laws regarding credit reports, data breach notification laws, and consumer protection laws, many of which carry significant potential for active enforcement and penalties. Abroad, our customers may be subject to the EU GDPR and UK GDPR or similar local or regional frameworks that impose a strict data protection compliance regime. Our customers may impose these obligations on us by contract, which could require us to expend resources to comply with those requirements. More generally, given the rapidly changing data privacy and data security laws, regulations, policies and legal obligations discussed above, and because any current compliance is subject to change based on this shifting and inconsistent landscape, we could incur costs of complying with these laws and regulations, which in some cases can be enforced by our customers, other private parties in addition to government entities, are high and likely to increase in the future, particularly as the degree of regulation increases, our business grows and our geographic scope and member base expands. The impact how we process personal information,of these laws and therefore limitregulations may disproportionately affect our business in comparison to our peers in the effectivenesstechnology sector that have greater resources. Our technologies could infringe the IP rights of others, causing costly litigation and the loss of significant rights. Significant litigation regarding IP rights exists in the semiconductor industry. It is possible that a third party may claim that our technologies infringe their IP rights or misappropriate their trade secrets, which has happened in the past. Any claim, even if without merit, could be time consuming to defend, result in costly litigation, require us to enter into royalty or licensing agreements, which may not be available to us on acceptable terms, or at all, subject us to damages or injunctions restricting our sale of products, invalidate a patent or family of patents, require us to refund license fees to our customers or to forgo future payments or require us to redesign certain of our solutions orproducts, any one of which could adversely affect our ability to develop or deliver new products or services. For example, the European Union General Data Protection Regulation, which became fully effective on May 25, 2018, imposes stringent data protection requirementssales opportunities, expenses, and provides for significant penalties for noncompliance of up to the greater of €20 million or four percent of worldwide annual revenues. Regulation is also increasingly occurring at the U.S. state level to supplement federal legislative action or inaction, as indicated by the California Consumer Privacy Act (CCPA), which first became enforceable in 2020. Additionally, we must frequently expand our internal information system to meet increasing demand in storage, computing and communication, which may result in increased costs. Our internal information system is expensive to expand and must be highly secure due to the sensitive nature of our customers’ information that we transmit. Building and managing the support necessary for our growth places significant demands on our management and resources. These demands may divert these resources from the continued growth of our business and implementation of our business strategy.
Competition in the market for data analytics and related systems and services may intensify in the future, which could impedeour ability to grow or execute our strategy. We currently face indirect competition fromOur industry is marked by rapid technological developments and innovations (such as the internal groups at IC companiesuse of AI and direct competition from providers of (i) yield management and/or prediction systems,ML) and evolving industry standards. If we are unable to innovate quickly enough to keep pace with our competitors in incorporating such as KLA-Tencor, Siemens AG (“Siemens”), Onto Innovation, Inc. (“Onto”), and Synopsys, Inc.; (ii) semiconductor manufacturing software, such as Applied Materials, Inc., BISTel Inc., Invantest, Inc., NI, Inc., Onto, and Siemens; (iii) inline inspection, metrology and electrical test equipment providers, such as Applied Materials and Keysight Technologies, Inc.; and, (iv) connectivity software or integration products/services supporting factory connectivity or control needs of customers, such as PEER Group, Inc., Kontron AIS, GmbH, Yokogawa Electric Corp., and Kornic Automation Co. Ltd.technological developments in our product offerings, our business could be harmed. See the discussion in “Competition” in Part 1, Item 1. “Business” section for more information about our current competitors. There may be other providers of competitive commercial solutionscompetitors of which we are not aware, and we may compete with the products or offerings of these namedour existing competitor companies or additional companies if we expand our offerings through acquisitionacquisitions or development. For example, since our acquisition of Cimetrix Incorporated in late 2020, we now face competition in the connectivity and integration products/services supporting factory equipment connectivity and control. The demand for solutions that address the need for better integration between the silicon design and manufacturing processes may encourage new direct competitors to enter into our market. For example, in 2020, two of our competitors were acquired by larger entities, Synopsys, Inc. acquired Qualtera and NI, Inc. acquired Optimal+, which may enable greater investment or marketing of these competitive applications. ThisIncreased competition in our market may intensify in the future, which could lead to increased pricing pressure, negatively impacting our revenues, and slow ouror a decreased ability to grow or execute our strategy. Also, our current and potential customers may choose to develop their own solutions internally, particularly if we are slow in deploying our solutions or improving them to meet market needs. These and other competitors may be able to operate with a lower cost structure than our engineering organization, which would give any such competitor’s products a competitive advantage over our solutions.
Generative AI and the user other advanced AI technologies for software development may subject us to claims of misappropriation of others’ IP, bugs/errors, and ambiguous ownership of created content. Uncertainty around new and emerging AI applications such as generative AI content creation may require additional investment to protect our proprietary datasets, ML models, and systems to test for accuracy, bias and other variables, which may be costly and could impact our profit margin if we decide to expand generative AI into our product offerings. Developing, testing, and deploying secure and reliable AI systems and tested software made using such AI systems may also increase the cost profile of our offerings. We would be liable for any inaccuracies or errors in software that we release that causes downtime or other damage to our customers’ facilities or production lines, which could greatly increase our expenses and decrease our earnings. Risks Related to Our Operations Measurement of our variable consideration requiressometimes require data collection and customers’ use of estimates in some cases and issubject to customers' agreementare contingent upon customers’ consent and ismay be later offset if actual data differ from customers’ estimates, which can result in uncertainty and cause quarterlyresults to fluctuate. We can only recognize volume- or average selling price- (“ASP”) based royalties once we have reached agreement with our customers on their level of yield performance improvements or average selling prices (also called “ASP”)ASP and quarterly agreements are sometimes based on estimates of volume results or ASP for each quarter. Measuring the amount of yield improvement is inherently complicated and dependent on our customers’ internal processes and on certain non-public information thus,that may not be directly available to us. Thus, there may be uncertainty as to some components of measurement or calculation. Also, some variable consideration can be highly susceptible to delays in the customerour customers’ measurement of key factors such as reporting volumes results and level of yield or ASP. Therefore, we may have to estimate revenue related to contingent variable fees or usage-basedusage- or sales-based royalties prior to the receipt of performance reports, such as royalty acknowledgements, or other related information from customers. These estimates are subject to judgment to evaluate whether it is probable that a significant revenue reversal will not occur in future periods, which could result in our recognition of less Integrated Yield Ramp revenue than expected in any particular period andthat may later be offset when actual results become available.available if such results differ from estimates. We have customers with past due receivable balances and our failure to collect a significant portion of such balances could adversely affect our cash, require us to write-off receivables, or increase our expense or our bad debt allowance. allowance for credit losses. If our customers fail to pay receivable balances when due, our cash will decrease and we may have to incur additional expenses in an attempt to collect it,such receivables, to write-off a portion or all of such receivables, or to increase our bad debt allowance.expense or allowance for credit losses. Our accounts receivable balance, net of reserves,allowance for credit losses, was $34.1$44.9 million and $40.7$42.2 million as of December 31, 2020,2023 and 2019,2022, respectively. Unbilled accounts receivable, included in accounts receivable, totaled $7.2$16.4 million and $7.4$13.5 million as of December 31, 20202023 and 2019,2022, respectively. Unbilled accounts receivable that are not expected to be billed and collected during the succeeding 12-monthtwelve-month period are recorded in other non-current assets and totaled $2.0$1.1 million and $4.1$0.8 million as of December 31, 20202023 and 2019,2022, respectively. Two customers accounted for 27%50% of our gross accounts receivable as of December 31, 20202023, and three customers accounted for 53% of our gross accounts receivable as of December 31, 2019.2022. The total accounts receivable reservesallowance for credit losses was $1.0 million and $0.2$0.9 million as of December 31, 20202023 and 2019, respectively.2022. We generally do not require collateral or other security to support
accounts receivable. Despite the financial ability of these customers to pay for on-going services by PDF under valid contracts, customers may delay payments. Our allowances for potential credit losses, if any, could be insufficient, and we may need to adjust our allowance for doubtful accountscredit losses from current estimates or write-off receivables depending on such claims in the future. If we are forced to pursue legal remedies to collect receivables, our expenses could rise significantly and our business relationship and future business with these customers could suffer. We have experienced losses in the past and we may incur losses again in the future.
We have experienced losses in the past, and we may incur losses again in the future if we are not able to adequately control our costs or if total revenues fail to exceed costs. In addition, virtually all of our quarterly operating expenses are fixed, so any shortfall in anticipated quarterly revenues could significantly reduce our operating results below expectations. Our accumulated deficit was $76.2 million as of December 31, 2020. We have in the past and may in the future incur significant expenses in connection with:
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| funding for research and development;
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| restructuring costs related to our cost control and management efforts;
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| expansion of our sales and marketing efforts; and
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| additional non-cash charges relating to amortization and stock-based compensation.
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We face operational and financial risks associated with international operations thatcould negatively impact our revenues. We derive overIn recent years, we have derived nearly half of our revenues from sales outside of the United States, and we expect our international business to continue to grow. We have in the past expanded and reorganized, at different times, our operations, including international operations, and may in the future continue such expansionexpansions or reorganizationreorganizations by establishing or restructuring international subsidiaries, offices, or contractor relationships in locations, if and when, deemed appropriate by our management. Thus, the success of our business is subject to risks inherent in doing business internationally, including in particular:
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| our potential growth in China is dependent upon continued investments in the semiconductor industry by both private and public entities within China. Should circumstances change such that the level of investments is substantially reduced, our future growth potential may be limited; |
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| some of our key engineers and other personnel are foreign nationals and they may not be permitted access to certain technical information under U.S. export laws or by certain of our customers and may have difficulty gaining access to the United States and other countries in which our customers or our offices may be located, and it may be difficult for us to recruit and retain qualified technical and managerial employees in foreign offices; |
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| ineffective or inadequate protection or enforcement of our intellectual propertyIP in foreign jurisdictions; |
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| greater difficulty in collecting account receivables resulting in longer collection periods, bad debt,credit losses, and increased costcosts to collect; |
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| language and other cultural differences may inhibit our sales and marketing efforts and create internal communication problems amongbetween our U.S. and foreign teams, increasing the difficulty of managing multiple, remote locations and negatively impacting sales and revenue; |
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| compliance with, inconsistencies among, and unexpected changes in, a wide variety of foreign laws and regulatory environments with which we are not familiar including, among otherothers, issues with respectrelated to employees,human resources, personal data, tax, protection of our IP, and a wide variety of operational regulations and trade and export controls under domestic, foreign, and international law; |
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| currency risk due to the fact that certain of our payables and for our international officesoffices’ payables are denominated in the foreign currency,currencies, including the Euro, Yen, and RMB, while virtuallypredominantly all of our revenues is denominated in U.S. dollars, or in the event a larger portion of our revenues becomes denominated in foreign currencies, we would be subject to a potentially significant exchange rate risk; |
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| inadequate local infrastructure that could result in business disruptions; |
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| additional taxes, interest, and potential penalties, and uncertainty around changes in tax laws of various countries; |
| ● | | | | • | geopolitical instability or changes in government, including in the United States of America, could disrupt our operations or our customers’ purchases or operations or those of related supply chain participants; |
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| quarantine, private travel limitation,restrictions, or business disruptiondisruptions in regions affecting our operations, stemming from actual, imminent or perceived outbreakoutbreaks of human pandemic or contagious disease,diseases, including the COVID-19; or |
| ● | | | | • | economic or political instability, including but not limited to armed conflict, terrorism, interference with information or communication of networks or systems, as well asincluding strained or worsening relations between the United States and China, occupation or war involving Russia and Ukraine and most recently between Israel and Hamas, and the resulting disruption to economic activity and business operations. |
Further, our employees and contractors include professionals located in various international locations, including Shanghai, China and Ramallah, Palestine, and Israel, and Taiwan who provide software-related development, quality assurance, maintenance, and other technical support services for certain of our software products. PoliticalConflicts in these regions or impacting these regions, or policy changes, including policies regardingcovering export control,controls, that affect these or other international operations could disrupt or limit the work our employees and contractors are able to perform and thusmay negatively affect the range of services we are able to provide our customers or our cost for such services. The COVID-19 pandemic has affected the manufacturing and shipment of goods. From January to April 2020, our Shanghai office was temporarily shut down and the restrictions limited the ability of our local employees to travel to customer sites or visit our other offices. An extended closure of our customers' plants due to a resurgence of COVID-19 or variants thereof in China could adversely impact our business.
In addition, our global operations are subject to numerous U.S. and foreign laws and regulations, including those related to anti-corruption, tax, corporate governance, imports and exports, financial and other disclosures, privacy, and labor relations. These laws and regulations are complex and may have differing or conflicting legal standards, making compliance difficult and costly. In addition, there is uncertainty regarding how proposed, contemplated, or future changes to these complex laws and regulations could affect our business. We may incur substantial expense in complying with the new obligations to be imposed by these laws and regulations, and we may be required to make significant changes in our business operations, all of which may adversely affect our revenues and our business overall. Given the high level of complexity of these laws, there is a risk that some provisions may be inadvertently or intentionally breached, for example through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal documentation requirements or otherwise. If we violate these laws and regulations, we could be subject to fines, penalties, or criminal sanctions, and may be prohibited from conducting business in one or more countries. Additionally, we may be held liable for actions taken by our local dealers and partners. A significant violation could additionally have a significantly negatively impact our sales opportunities, operations, and financial results. Even ifSome companies in China have indicated to us that they have decided to use only local vendors as a precaution. If more companies respond to changing regulations by using local vendors, then our operations and ability to deliver products and services to customers in China and elsewhere are notcould be significantly negatively impacted by such changing regulations, our customers in China and elsewhere may decide to use only local vendors as a precaution.impacted. In such case, our expected international business may be slower than expected or not materialize at all, in which case, our sales opportunities, operations, and financial results would suffer. Further, early decisions by the Biden U.S. Presidential Administration confirm continuitygovernment has imposed broad sanctions on Russia, Belarus and certain companies and high-wealth individuals relating to the invasion of Ukraine, and has additionally maintained a bipartisan consensus in the U.S. government favoring increased confrontation of China inon trade practices and economic matters, national security, and human rights. The Bidencurrent U.S. Administration views technology as a domain of strategic competition in which the U.S. and its allies must stay ahead of China and has reaffirmed the U.S. government consensus identifyingidentified semiconductor, artificial intelligence, andAI, 5G technologies, and the protection of U.S. supply chains as priority efforts. If the Administration continuesAs a result of these government actions and policies, unless and until related restrictions are lifted, we are generally not able to augment ongoing U.S. efforts by enlisting the cooperation of allied countries in both advanced developmentsupply many products, services and protection against P.R.C. use of U.S.technologies to affected entities and allied advances, or expands or intensifies export controls and sanctions, including by adding more P.R.C. companies to the U.S. Export Administration Regulations (EAR) Entity List, our ability to sell to these companies could be negatively impacted.countries. Our standard operations include development, distribution processes, software download sites, and professional service centers and processes located in various geographies around the world. Some customers 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. The continuing tension between the U.S. government and P.R.C.each of the Chinese and Russian governments in trade and security matters or the perception of that tension could lead to further disruptions or reductions in international trade, deter or prevent customer purchasing activity, and may negatively impact our financial results. Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to ESG matters that could expose us to numerous risks. We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC, the Nasdaq Stock Market, and the Financial Accounting Standards Board (“FASB”). These rules and regulations continue to evolve in scope and complexity and many new requirements have been created in response to laws enacted by U.S. Congress, making compliance difficult and uncertain, including a new rule effective in late 2023 that requires us to report to the SEC all material cyber security incidents through the filing of a Form 8-K. In addition, increasingly regulators, customers, investors, employees, and other stakeholders are focusing on ESG matters and related disclosures. These changing rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations. For example, developing and acting on ESG initiatives, and collecting, measuring, and reporting ESG information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s proposed climate-related reporting requirements. We may also communicate certain initiatives and goals regarding environmental matters, diversity, responsible sourcing, social investments, and other ESG matters in our SEC filings or in other public disclosures. These initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy, or completeness of the disclosure of our ESG initiatives. Further, statements about our ESG initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change. In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG goals on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected. Provision of certain of our data services relies on installing, configuring, and operating proprietary configuration of hardware and software systems located in third-party facilities and errors affecting such facilities’ operations could lead to liability for us, and any objection from such third-party facility or delay in providing us physical or logical access to our systems may adversely impact our ability to timely perform our contract obligations or lead to confidentiality, integrity, availability, security, or privacy controls exceptions. In connection with our data services offerings, we rely on installing, configuring, and operating proprietary configurations of hardware and software systems in facilities owned and operated by third parties around the world. If the third-party facility owner/operator does not allow us to install, access and maintain, or otherwise operate as intended these systems, we may not timely fulfill our contractual obligations to, or expectations of, our customers. Also, any intentional or unintentional disruption of the operation of these proprietary systems may lead to customer dissatisfaction, which could cause us to lose future bookings and reduce revenue and negatively impact usour earnings. Additionally, any potential or actual malicious cybersecurity incident or accidental misconfiguration resulting in a data security incident involving these proprietary systems may require complex diagnosis and mitigation because they are located at third-party facilities and this may lead to delays, errors, lack of system availability, loss or our China salescustomers’ data integrity, or further unauthorized disclosure of customer confidential or privacy data. Further, if our system causes downtime or other disruption or loss to such third-party facility, we could be liable for damages associated with such event, which could increase our expenses and financial results.distract management, and cause other third-party facilities to not want to work with us. Installing and maintaining such proprietary systems around the world requires that we manage the complexity of global operations of individual installations at a large number of different third parties in various countries. The cost and complexity of obtaining support, installing updated security patches, and addressing any other critical vulnerabilities in each individual physical system may lead to exceptions in controls of confidentiality, availability, integrity, security, and privacy, which could negatively impact the availability of our data services to customers, damage our reputation, or lead to lower bookings or sales. 23
Tax Risks ChangesU.S. federal tax reform and changes in effectiveforeign tax rateslaws could positivelychange our tax burden and adversely affect our earnings, thereby raising investors’ expectations, while the final tax rates that are determined could be significantly higher, thereby lowering our earningsbusiness and causing us to miss investors’ expectations, which could cause our stock price to drop.
financial condition. We conduct our business globally and, as a result, are subject to taxation in the United States and foreign countries. Our future tax rates could be affected by numerous factors, including recent changes in tax laws or the interpretation of such tax laws, insufficient taxable income to realize deferred tax assets, and changes in accounting policies. Our filings are subject to reviews or audit by the Internal Revenue Service and state, local and foreign taxing authorities. We cannot be sure that any final determination in an audit would not be materially different than the treatment reflected in our historical income tax provisions and accruals. If additional taxes are assessed as a result of an audit, there could be a significant negative effect on our income tax provision and our operating results in the period or periods for which that determination is made. Any changes in our geographical earnings mix in various tax jurisdictions, including those resulting from transfer pricing adjustments, could materially increase our effective tax rate. On August 9, 2022, the CHIPS and Science Act of 2022 (the “CHIPS Act”) was enacted in the United States to provide certain financial incentives to the semiconductor industry, primarily for manufacturing activities within the United States. On January 19, 2024 the House Ways and Means Committee passed with bipartisan support a proposed “tax bill” which would retroactively restore the three expired business tax provisions from the Tax Cuts and Jobs Act through the end of 2025, including the requirement to capitalize and amortize Section 174 research and experimentation (“R&E”) expenditures. The provision would delay the date when taxpayers must begin capitalizing and amortizing their “domestic” R&E expenditures until taxable years beginning after December 31, 2025, while leaving the requirement to capitalize foreign research unchanged. This change would be retroactive for taxpayers who have already filed tax returns for taxable year 2022. The tax bill is pending vote in the House and Senate. We are continuing to monitor the CHIPS Act and the proposed tax bill and related regulatory developments to evaluate their potential impact on our business and operating results. For further discussion of the CHIPS Act, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Future events may impact our deferred tax asset position, including the utilization of net operating loss and tax credit carryforwards. Realization of our deferred tax assets is dependent primarily upon future taxable income in the applicable jurisdiction. As of December 31, 2020, weWe previously recorded a full valuation allowance against all of our U.S. federal and state deferred tax assets due to the uncertainty surrounding the future realization of these deferred tax assets. Therefore, no benefit has been recognized for the net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets. The net operating loss and tax credits could expire unused and be unavailable to reduce future income tax liabilities. We intend to continue maintaining a full valuation allowance on these deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. We evaluate our deferred tax assets for realizability each reporting period. The impact of releasing some or all of such valuation allowance in a future period could be a material benefit in the period in which such release occurs. Risks Related to Our Strategic Transactions We may devote significant time and resources to developing strategic relationships but we may not realize the benefits of our strategic partnership with Advantest,such efforts, which could have an adverse effect on our business and results of operationsoperations. OnWe have in the past devoted, and plan in the future to devote, time and resources to identifying, developing, and promoting strategic relationships with other suppliers to provide combined, integrated, or interoperable solutions to the semiconductor, electronics, and automotive industries. For example, from July 29, 2020 through August 2023, we entered into aannounced strategic partnershiprelationships or collaborations with Advantest Corporation, through its wholly-owned subsidiary, Advantest America,Siemens, Kulicke & Soffa Industries, Inc. (collectively, “Advantest”), that includes: (i) a significant agreement for our assistance in development of cloud-based applications for Advantest tools that leverage our Exensio software analytics platform; (ii) a commercial agreement providing for the license to third parties of solutions that result from the development work that combine Advantest’s testing applicationsSAP SE, proteanTecs Ltd, and our Exensio platform; (iii) a 5-year cloud-based subscription for our Exensio analytics platform and related services; and (iv) the purchase of 3,306,924 shares of our common stock, for aggregate gross proceeds of $65.2 million. This strategic partnership is in the early stages of development, and theVoltaiq, Inc. The full extent of itsthe future impact of these strategic relationships on our financial condition and results of operations is currently unknown and the failure to reap the anticipated benefits of Advantest’sthese companies’ financial resources, technology, customer relationships, and global footprint and/or to successfully develop successful jointcombined,
integrated, or interoperable solutions with such companies could have an adverse effect on our business and results of operations. Our acquisitions and divestitures create special risks and challenges that could adversely affect our financial results. WeOur success depends on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands, and competitive pressures. To this end, we have, made,from time to time, engaged in the process of identifying, analyzing, and maynegotiating possible acquisition transactions, and, from time to time, acquiring one or more businesses, and we expect to continue to make, acquisitionsdo so in orderthe future. We may choose to enhance our business.acquire new and complementary businesses, products, technologies and/or services instead of developing them ourselves. For example, we recently acquired Cimetrix Incorporated (“Cimetrix”) in December 2020 for $35.0a gross purchase price of approximately $37.5 million in cash consideration,($31.6 million net of cash acquired) for all of its outstanding equity. We may, however, face competition for acquisition targets from larger and more established companies with greater financial resources, making it more difficult for us to complete acquisitions. We may not be successful in consummating future acquisitions on Cimetrix’s balance sheet as of closing,favorable terms and subject to other closing adjustments. Acquisitions involvewe may not realize the benefits that we anticipate from one or more acquisitions that we consummate. Integrating any business, product, technology, or service into our current operations could be expensive and time-consuming and/or disrupt our ongoing business. Further, there are numerous risks associated with acquisitions and potential acquisitions, including, but not limited to, problems combining the purchased operations, technologies or products, unanticipated costs, liabilities, litigation, and diversion of management’s attention from our core businesses, adverse effects on existing business relationships with suppliers and customers, risks associated with entering markets in which we have no or limited prior experience, and where competitors in such markets have stronger market positions, initial dependence on unfamiliar supply chains or relatively small supply partners, failure of our due diligence processes to identify significant problems, liabilities or other challenges of an acquired company or technology, and the potential loss of key employees, customers, distributors, vendors, and other business partners of the companies we acquire.
There can be no assurance that we willWe may not be able to successfully integrate any businesses, products, technologies, or personnel that we might acquire or thatand the transaction willmay not advance our business strategy. The integration of businesses that we may acquire is likely to be a complex, time-consuming, and expensive process and we may not realize the anticipated revenues or other benefits associated with our acquisitions. If we fail to successfully manage, operate, or integrate any acquired business or if we are unable to efficiently operate as a combined organization, including through the use of common information and communication systems, operating procedures, financial controls, and human resources practices, we could be required to write-down investments and our business, financial condition, and results of operations may be adversely affected. We may also be unable to protect or enforce the intellectual propertyIP rights of any target business that we acquire, or such target businesses may become subject to claims of intellectual propertyIP infringement. Further, if we become subject to liabilities as a result of an acquisition, the liabilities we incur may be substantial and the amounts of such liabilities may not be covered by and/or may exceed any liability protections.
In connection with certain acquisitions, we have in the past and may agree toin the future issue common stock, or assume equity awards, that dilute the ownership of our current stockholders, use a substantial portion of our cash resources, assume liabilities (both known and unknown), record goodwill and amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges, incur amortization expenses related to certain intangible assets, and incur large and immediate write-offs and restructuring and other related expenses, all of which could harm our financial condition and results of operations. COVID-19 Risks
The COVID-19 pandemic has significantly affected how we and our customers are operating our business and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain.
The COVID-19 pandemic has significantly a ffected how we and our customers are operating our business. For example, most U.S. states and countries worldwide have imposed and may continue to impose from time-to-time for the foreseeable future, restrictions on the physical movement of our employees, partners, and customers to limit the spread of COVID-19, including travel restrictions and shelter-in-place orders. As a result, our Shanghai office was temporarily shut down and the restrictions limited the ability of our local employees to travel to customer sites or visit our other offices from January to April 2020. Our US R&D facility and offices in Canada, France, Japan and Korea were temporarily closed on various periods during the first to third quarter of 2020, and our corporate headquarters in the United States and several other impacted locations are temporarily closed as well. In addition, our personnel worldwide are subject to various country to country travel restrictions, which limit our ability to provide services to customers at their facilities. These impacts have disrupted our normal operations. If the COVID-19 pandemic has a substantial impact on our employees’ productivity, our results of operations and overall financial performance may be harmed.
Moreover, the conditions caused by the COVID-19 pandemic could adversely affect our customers’ ability or willingness to purchase our products or services, delay prospective customers’ purchasing decisions, adversely impact our ability to provide or deliver products and on-site services to our customers, delay the provisioning of our offerings, lengthen payment terms, reduce the value or duration of their subscriptions, or affect attrition rates, all of which could adversely affect our future sales, operating results and overall financial performance. For example, we believe the lack of an ability to meet face-to-face during most of 2020 may have made it harder for us to sell complex or new technologies to such customers during 2020.
While the potential economic impact brought by the COVID-19 pandemic may be difficult to assess or predict, the pandemic has resulted in significant disruption of global financial markets and on June 8, 2020, the National Bureau of Economic Research announced that the U.S. was in a recession. A long-term recession or long-term market downturn resulting from the spread of COVID-19 could materially impact the value of our common stock, impact our access to capital and affect our business in the near and long-term.
The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus and variants thereof, the extent and effectiveness of containment actions, including the availability and effective distribution of vaccines, and the impact of these and other factors on our employees, customers, partners and vendors. If we are not able to respond to and manage the impact of such events effectively, or if the macroeconomic conditions of the general economy continue to worsen or the industries in which we operate are negatively impacted over the long-term, our business, operating results, financial condition and cash flows could be adversely affected.
General Risk Factors If we are not able to retain, attract, motivate, and strategically locate talented employees, including some key executives, our business may suffer. Our success and competitiveness depend on our ability to retain, attract, motivate, and strategically locate in our offices around the globe, talented employees, including some of our key executives. Achieving this objective may be difficult due to many factors, including fluctuations in global economic and industry conditions, changes in our management or leadership, the hiring practices at our competitors or customers, cost reduction activities, and the effectiveness of our recruiting and compensation programs, including equity-based programs. Further, we have had, and expect to continue to have, difficulty in obtaining visas permitting entry for some of our employees that are foreign nationals into the United States, and delays in obtaining visas permitting entry into other key countries, for several of our key personnel, which disrupts our ability to strategically locate our personnel. In recent years,the past the United States increasedhas and, in the future, the United States may again increase the level of scrutiny in granting H-1(b), L-1, and other business visas. Compliance with United States immigration and labor laws could require us to incur additional unexpected labor costs and expenses or could restrain our ability to retain skilled professionals. If we lose the services of certain of our key executives or a significant number of our engineers, it could disrupt our ability to implement our business strategy. If we do not successfully attract, retain, and motivate key employees, including key executives, we may be unable to realize our business objectives and our operating results may suffer. Our earnings per share and other operating results may vary quarter to quarter, which could result in not meeting investors’ expectations and cause our stock price to drop. volatility. Our stock price has fluctuated widely during the last few years, from a low closing price of $7.73 per share in October 2018 to a high closing price of $26.18 per share in August 2020.years. A factor in the volatility may be that our historical quarterly operating results have fluctuated. Our future quarterly operating results will likely fluctuate from time to time and may not meet the expectations of securities analysts and investors in some future period, which could cause our stock price to decrease again.decrease. A significant reduction in our stock price negatively impacts our ability to raise equity capital in the public markets and increases the cost to us, as measured by dilution to our existing shareholders, of equity financing. In addition, the reduced stock price also increases the cost to us, in terms of dilution, of using our equity for employee compensation or for acquisitions of other businesses. A greatly reduced stock price could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest, a hostile take-over bid, and fewer business development opportunities. Also, significant volatility in theour stock price could be followed by a securities class action lawsuit, which could result in substantial costs and a diversion of our management’s attention and resources. Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of our securities. In recent years, shareholder activists have become involved in numerous public companies, including our company. Shareholder activists frequently propose to involve themselves in the governance, strategic direction, and operations of a company. Such proposals may disrupt our business, increase our expenses, and divert the attention of our Board of Directors and our management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, interfere with our ability to execute our strategic plan be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. A proxy contest for the election of directors at our annual meeting could also require us to incur significant legal fees and proxy solicitation expenses. In addition, actions of activist shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
Item 1B. Unresolved Staff Comments None.
Item 2. Properties
None. Item 1C. Cybersecurity Cybersecurity Risk Management and Strategy We recognize the importance of assessing, identifying, and managing material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of Regulation S-K. These risks include, among other things, operational risks, intellectual property theft, fraud, extortion, harm to employees or customers, violation of privacy or security laws and other litigation and legal risk, and reputational risks. We have implemented several cybersecurity processes, technologies, and controls to aid in our efforts to assess, identify, and manage such material risks. 26
Our process for identifying and assessing material risks from cybersecurity threats operates alongside our broader overall risk assessment process, covering all company risks. As part of this process appropriate disclosure personnel will collaborate with subject matter specialists, at least annually and more frequently as necessary due to business changes or external changes, to gather insights for identifying and assessing material cybersecurity threat risks, their severity, and potential mitigations. We also have a cybersecurity specific risk assessment process, which helps identify our cybersecurity threat risks. As part of this process, and our processes to provide for the availability of critical data and systems, maintain regulatory compliance, identify and manage our risks from cybersecurity threats, and to protect against, detect, and respond to cybersecurity incidents, as such term is defined in Item 106(a) of Regulation S-K, we undertake the below listed activities, among others: | ● | maintain a risk register and risk assessment process based on The National Institute of Standards and Technology (“NIST”) Cybersecurity Framework; |
| ● | use various third-party software testing products and services designed to test and assess the security of our software; |
| ● | closely monitor emerging data protection laws and implement changes to our processes designed to comply with such laws; |
| ● | undertake an annual review of our policies and statements related to cybersecurity; |
| ● | proactively inform our customers of substantive changes related to customer data handling through disclosures in our SOC 2 Type 2 report or other contractually mandated disclosures; |
| ● | conduct annual cybersecurity training for employees and contractors with access to PDF systems and sensitive data; |
| ● | conduct incident management training and practice for individuals with responsibilities responding to a cyber incident; |
| ● | conduct regular phishing email simulations for employees and contractors with access to corporate email systems to enhance awareness and responsiveness to such possible threats; |
| ● | use findings and root cause analysis of cybersecurity incidents to improve our cybersecurity processes and technologies; |
| ● | maintain technologies designed to provide network and endpoint monitoring, regular vulnerability assessments, and annual penetration testing to improve our information systems, as such term is defined in Item 106(a) of Regulation S-K; |
| ● | carry information security risk insurance that provides protection against the potential losses arising from a cybersecurity incident; |
| ● | maintain an employee handbook, Code of Conduct, and Acceptable Use policy that makes clear the importance of cybersecurity and protection of PDF and customer intellectual property; and |
| ● | our incident response policy and plan specify the activities we take to prepare for, detect, respond to and recover from cybersecurity incidents, which include processes to triage, assess severity for, escalate, contain, investigate, and remediate the incident, as well as to comply with potentially applicable legal and reporting obligations and mitigate brand and reputational damage. We regularly exercise and update the plan after actual incident responses or simulated incident response scenarios. |
We subscribe to several external independent monitoring services to score and assess our externally facing network and information services and we engage a third-party security firm at least annually to conduct external and web penetration testing exercises on our corporate network and our commercial SaaS service platform. Our processes also address cybersecurity threat risks associated with our use of third-party service providers, including those in our supply chain or who have access to our customer and employee data or to our systems. Third-party risks are included within our broader overall risk assessment and management process, as well as our cybersecurity-specific risk identification program, both of which are discussed above. In addition, cybersecurity considerations affect the selection and oversight of our third-party service providers during vendor onboarding and during periodic reviews. We perform diligence on third parties that have access to our systems, data or facilities that house such systems or data, and regularly monitor cybersecurity threat risks identified through such diligence. Additionally, we generally require those third parties that could introduce significant cybersecurity risk to us to agree by contract to manage their cybersecurity risks in specified ways, and to agree to be subject to cybersecurity audits or independent information security assessments or certifications. Additionally, we have processes designed to monitor public and federal government database and other sources for evidence of known and/or exploited vulnerabilities in third-party services including those provided as SaaS and we take action to remediate or establish compensating controls if those systems are determined to be critical to our cybersecurity. We also maintain disaster recovery plans in place for all mission critical parts of the business, although we do not have a business continuity plan developed to account for all continuity risks. We describe whether and how risks from identified cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, under the headings “We are exposed to risks related to information technology infrastructure, information management and protection, cybersecurity threats, and cyber incidents.” and “Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to environmental, social and governance matters that could expose us to numerous risks.” included as part of our risk factor disclosures at Item 1A of this Annual Report on Form 10-K. For more than 5 years, we have not experienced any material cybersecurity incidents and the expenses we have incurred from cybersecurity incidents were immaterial. This includes penalties and settlements, of which there were none. Cybersecurity Governance Information technology and data security, particularly cybersecurity, is a top area of focus for our Board of Directors, who views our focus in these areas as essential for the success of our company and the broader technology industry in which we operate. As described in the Audit Committee Charter of the Board of Directors, the Audit Committee is tasked with oversight of certain risk issues, including cybersecurity. The Audit Committee is comprised entirely of independent directors, two of whom have significant work experience related to information security issues or oversight. Management reports high severity security incidents to the Audit Committee after they are discovered. Additionally, management provides a summary four times per year of all security incidents to the Audit Committee. The full Board of Directors is also provided an annual assessment of our security program, our internal response preparedness, and assessments led by outside assessors and auditors. Our Audit Committee is regularly involved in reviewing cybersecurity risk management. At least quarterly, the Vice President of Operations presents and reviews key security metrics with the Audit Committee including a review of cyber-security events, cybersecurity initiatives and new or developing cybersecurity risks relevant to the business. The Audit Committee, which comprises at least two individuals with experience in cybersecurity and related matters, meets with these members of senior management to review our information technology and data security policies and practices, and to assess current and projected threats, cybersecurity incidents, and related risks. Our Vice President of Operations reports directly to our executive management team and advises the company on cybersecurity risks and assesses the effectiveness of information technology and data security processes and business policies impacting our overall cybersecurity risk. Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by our Vice President of Operations and a cross section of subject matter experts from Information Technology, Exensio Cloud Operations and Corporate Legal and team. Such individuals have collectively over 30 years of prior work experience in various roles involving managing information security, data privacy risks and regulatory frameworks, developing cybersecurity strategy, implementing effective information and cybersecurity programs and experience in security controls testing and the planning and executing of independent cybersecurity assessments. Our Incident Response Policy is reviewed annually and documents the controls and procedures for timely and accurate reporting of material cybersecurity incidents to the relevant parties, including the Audit Committee when applicable. Our Incident Response Team leads the response to any reported cybersecurity event and comprises experts from Engineering, Information Technology, Legal, Cloud Operations, and Data Security. The Vice President of Operations and Executive Vice President of Products and Solutions are informed about and monitor the prevention, mitigation, detection, and remediation of cybersecurity incidents through their management of, and participation in, the cybersecurity risk management and strategy processes described above including the incident response. Item 2. Properties Our principal executive offices are located in Santa Clara, California, where we lease approximately 20,800 square feet of office space under a lease agreement that expires in August 2028. We also lease additional facilities and offices in Milpitas, California; Pittsburgh, Pennsylvania; Richardson, Texas; Salt Lake City, Utah; Deer Park, Illinois; Shanghai, China; Canada; France; Germany; Italy; Japan; South Korea; and Taiwan for local sales, product development and technical support. We believe our existing and planned facilities and offices are adequate to meet our current needs and are being utilized consistently with our past practice. We consistently look for opportunities to minimize costs related to office space through improved efficiencies and intend to make changes to leased facilities in the future as appropriate to reflect changes in worldwide operations and headcount. Item 3.Legal Proceedings From time to time, we arethe Company is subject to various claims and legal proceedingsproceedings that arise in the ordinary course of business. We accrueThe Company accrues for losses related to litigation when a potential loss is probable and the loss can be reasonably estimated in accordance with Financial Accounting Standards Board (FASB)FASB requirements. As of December 31, 2020, we were2023, the Company was not party to any material legal proceedings thus nofor which a loss was probable and noor an amount was accrued. On May 6, 2020, the Company initiated an arbitration proceeding with the Hong Kong International Arbitration Center against SMIC New Technology Research & Development (Shanghai) Corporation (“SMIC”) due to SMIC’s failure to pay fees due to PDFthe Company under a series of contracts. We seekThe 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. TheSMIC 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. A decision is on-going.currently expected in 2024.
Item 4.Mine Safety Disclosures Not applicable. None.
PART II
Item 5.Market For Registrant’s Common Equity, and Related StockholderMatters and Issuer Purchases of Equity Securities Our common stock trades on the Nasdaq Global Market under the symbol “PDFS.” As of March 3, 2021,February 23, 2024, we had approximately 3124 stockholders of record. The number of stockholders of record does not include individuals whose stock is in nominee or “street name” accounts through brokers. Dividend Policy No cash dividends were declared or paid in 20202023, 2022 and 2019.2021. We currently intend to retain all available funds to finance future growth, product development, and stock repurchases and, therefore, do not anticipate paying any cash dividends on our common stock for the foreseeable future. Stock Performance Graph The performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of PDF Solutions under the Securities Act, or the Exchange Act. The following graph and tables compare the cumulative total stockholder return data for our stock since December 31, 2018, to the cumulative return over such period of (i) The Nasdaq Composite Index and (ii) The S&P 600 Information Technology (Sector) (TR) Index. The graph assumes that $100 was invested on December 31, 2018. The graph and tables further assume that such amount was initially invested in the Common Stock of the Company at a per share price of $8.43 (closing price on December 31, 2018) and that any dividends were reinvested. This performance graph and the corresponding tables are not “soliciting material,” are not deemed filed with the SEC and are not to be incorporated by reference in any filing by us under the Securities Act or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. The stock price performance on the following graph and tables is not necessarily indicative of future stock price performance. Unregistered Sales of Equity Securities The information required to be disclosed by paragraph (a) of Item 5 to Form 10-K has been included in a current report on Form 8-K and, therefore, is not furnished herein, pursuant to the last sentence in that paragraph.
None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers On May 28, 2020,April 11, 2022, the Company’s 2018 stock repurchase program (the “2018 Program”) that was originally adopted on May 29, 2018, expired. On June 4, 2020, the Company’s Board of Directors adopted a new stock repurchase program (the “2020“2022 Program”) to repurchase up to $25.0$35.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans,from time to time, over the next two years. No shares were repurchased under the 2018 Program or 2020 Program duringDuring the year ended December 31, 2020. 2023, the Company repurchased 21,340 shares under the 2022 Program at an average price of $34.81 per share for an aggregate total price of $0.7 million. During the year ended December 31, 2022, the Company repurchased 714,600 shares under the 2022 Program at an average price of $23.36 per share for an aggregate total price of $16.7 million. In total, the Company has repurchased 735,940 shares under the 2022 Program at an average price of $23.69 per share for an aggregate total price of $17.4 million. There were no purchases made by or on behalf of the Company or any “affiliated purchaser” (as the term is defined in Rule 10b-18(a)(3) under the Exchange Act) of ourthe Company’s common stock during the fourth quarter ended December 31, 2020. 2023.
Item 6. Selected Financial Data Reserved The following selected consolidated financial information has been derived from the audited consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with Item 7. “Management’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes to those statements included therein and in Part II of this Form 10-K.
| | Year Ended December 31, | | | | 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | | (In thousands, except per share amounts) | | Consolidated Statements of Comprehensive Income (Loss) Data: | | | | | | | | | | | | | | | | | | | | | Total revenues | | $ | 88,046 | | | $ | 85,585 | | | $ | 85,794 | | | $ | 101,871 | | | $ | 107,461 | | Costs and Expenses: | | | | | | | | | | | | | | | | | | | | | Costs of revenues | | | 36,765 | | | | 33,474 | | | | 42,803 | | | | 47,521 | | | | 44,448 | | Research and development | | | 34,654 | | | | 32,747 | | | | 27,998 | | | | 30,078 | | | | 27,559 | | Selling, general and administrative | | | 32,677 | | | | 26,299 | | | | 23,934 | | | | 23,684 | | | | 22,056 | | Amortization of other acquired intangible assets | | | 741 | | | | 609 | | | | 435 | | | | 398 | | | | 432 | | Restructuring charges | | | — | | | | 92 | | | | 576 | | | | — | | | | — | | Interest and other expense (income), net | | | 1,269 | | | | (276 | ) | | | (493 | ) | | | 264 | | | | 10 | | Income (loss) before taxes | | | (18,060 | ) | | | (7,360 | ) | | | (9,459 | ) | | | (74 | ) | | | 12,956 | | Income tax provision (benefit) | | | 22,303 | | | | (1,942 | ) | | | (1,743 | ) | | | 1,263 | | | | 3,853 | | Net income (loss) | | $ | (40,363 | ) | | $ | (5,418 | ) | | $ | (7,716 | ) | | $ | (1,337 | ) | | $ | 9,103 | | Net income (loss) per share: | | | | | | | | | | | | | | | | | | | | | Basic | | $ | (1.17 | ) | | $ | (0.17 | ) | | $ | (0.24 | ) | | $ | (0.04 | ) | | $ | 0.29 | | Diluted | | $ | (1.17 | ) | | $ | (0.17 | ) | | $ | (0.24 | ) | | $ | (0.04 | ) | | $ | 0.28 | | Weighted average common shares: | | | | | | | | | | | | | | | | | | | | | Basic | | | 34,458 | | | | 32,411 | | | | 32,169 | | | | 32,038 | | | | 31,373 | | Diluted | | | 34,458 | | | | 32,411 | | | | 32,169 | | | | 32,038 | | | | 32,431 | |
| | December 31, | | | | 2020 (1) (2) | | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | | (In thousands) | | Consolidated Balance Sheets Data: | | | | | | | | | | | | | | | | | | | | | Cash, cash equivalents and short-term investments | | $ | 145,296 | | | $ | 97,605 | | | $ | 96,089 | | | $ | 101,267 | | | $ | 116,787 | | Working capital | | | 151,175 | | | | 119,580 | | | | 137,693 | | | | 144,263 | | | | 151,757 | | Total assets | | | 287,580 | | | | 239,544 | | | | 225,905 | | | | 224,176 | | | | 222,329 | | Long-term obligations | | | 10,869 | | | | 15,391 | | | | 6,582 | | | | 6,171 | | | | 5,004 | | Total stockholders’ equity | | | 234,506 | | | | 196,157 | | | | 199,795 | | | | 198,368 | | | | 198,803 | |
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| (1) | On July 29, 2020,we entered into a strategic partnership with Advantest, which includes, among others, a Securities Purchase Agreement wherein we issued and sold to Advantest America, Inc., an aggregate of 3,306,924 shares of our common stock, at a purchase price of $19.7085 per share, for aggregate gross proceeds of $65.2 million, on July 30, 2020. | | | | | (2)
| In December 2020, we completed the acquisition of Cimetrix for approximately $35.0 million in cash consideration, net of cash on Cimetrix Incorporated (“Cimetrix”) balance sheet as of closing, for all of the outstanding equity of Cimetrix. As of December 31, 2020, payment made for this acquisition, net of cash acquired, amounted to $28.6 million, with the final amounts to be paid on the 12 month anniversary of closing. For further information about this acquisition, see Note 4 of “Notes to Consolidated Financial Statements” (Item 8 of Part II of this Report).
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Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations
Overview We offer products and services designed to empower engineers and data scientistsorganizations across the semiconductor ecosystemand electronics ecosystems to connect, collect, manage, 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 and third-party cloud-hosting platforms for SaaS, electrical measurement hardware tools, and physical IP for IC designs. We primarily monetize our offerings through license fees and contract revenuefees for professional services and increasingly recently, time-based fees for software as a service (or SaaS).SaaS. In some cases, especially on our historical IYRIntegrated Yield Ramp engagements, we also receive a value-based variable fee or royalty, thatwhich we call Gainshare. Our products, services, and solutions have been sold to IDMs, fabless semiconductor companies, foundries, OSATs, capital equipment manufacturers and system houses. Industry Trend The COVID-19 pandemic has significantly affected how we and our customers are operating our businesses. For example, most U.S. states and countries worldwide imposed in 2020, and may continue to impose from time-to-time for the foreseeable future, restrictions on the physical movement of people to limit the spread of COVID-19, including travel restrictions and stay-at-home orders. As a result, from January to April 2020, our Shanghai office was temporarily shut down and our local employees were restricted from traveling to customer sites or visiting our other offices. Several other impacted locations were temporarily closed partially or fully in 2020, with minimal staffing only for essential activities including, for example, supporting essential businesses with our U.S. clean room facility. By the third quarter of 2020, our offices in Canada, France, Korea, and Japan had generally reopened with some restrictions returning temporarily at the end of the year. We are closely monitoring the COVID-19 situation and are currently planning to reopen our corporate headquarters in the United States and other offices with a focus on our employees’ safety. In addition, our personnel worldwide continue to be subject to various country-to-country travel restrictions, which limits the ability of some employees to travel to other offices or customer sites. We believe the lack of an ability to meet face-to-face during most of 2020 may have made it harder for us to sell complex or new technologies to such customers during 2020. If we can again begin to meet with customers face-to-face, we may improve traction with these customers. To date, we have been able to provide uninterrupted access to our products and services due to our globally distributed workforce, many of whom were working remotely prior to the pandemic, and our pre-existing infrastructure, which supports secure access to our internal systems. The total duration and full extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the ultimate severity and transmission rate of the virus and variants, the extent and effectiveness of containment actions and vaccinations, and the impact of these and other factors on our employees, customers, partners, and suppliers.
Trends Certain other 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 ITinformation 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 continually decreased year to year.generally decreases 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, analytic 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 have recently been experiencing lower wafer shipments, which has negatively impacted our Integrated Yield Ramp gainshare revenue. The logic foundry market at the leading edgeleading-edge nodes, such as 10nm7nm, 5nm, and 7nm,smaller, underwent significant change over the past few years. The leading foundry continues to dominate market share as other foundries either started later than originally forecast in some cases.share. This trend will likely continue to negatively impact our Integrated Yield RampCharacterization services business on these nodes. We expect most logic foundries to invest in derivatives of older process nodes, such as 28nm and 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, packaging, and multi-patterned and EUVextreme ultraviolet lithography, as well as new innovations in process control and variability management. We expect China’s investment in semiconductors to continue. In order for these trends to provide opportunities for us to increase our business leveraging electrical characterization, Chinese semiconductors manufacturers will need to increase their production volumes on advanced technology nodes and continue to engage foreign suppliers, subject to complianceCompliance with changing U.S. export restrictions.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, services, and solutions for analytics. There are other global or business trends that may affect our business opportunities generally. For instance, the demand for consumer electronics, communications devices, and high-performance computing continues to drive technological innovation in the semiconductor industrygenerally as the need for products with greater performance, lower power consumption, reduced costs, and smaller size continues to grow with each new product generation. In addition, advances in computing systems and mobile devices continue to fuel demand for higher capacity memory chips. To meet these demands, IC manufacturers and designers are constantly challenged to improve the overall performance of their ICs by designing and manufacturing ICs with more embedded applications to create greater functionality while lowering power and cost per transistor. As this trend continues, companies will continually be challenged to improve process capabilities to optimally produce ICs with minimal random and systematic yield loss, which is driven by the lack of compatibility between the design and its respective manufacturing process. We believe that these difficulties will continue to create a need for our products and services that address yield loss across the IC product life cycle.follows: | ● | Macroeconomy, inventories, and demand. The worldwide economy did not recover as strongly or quickly as expected after the COVID-19 pandemic, and recession fears persist. As a result of the slow recovery, inventories of semiconductor devices remain elevated in many instances. The strength of demand for semiconductor products has varied by region and product segment. For example, demand for graphical processing unit products is strong, while demand for smart phones is weak. With high inventories and soft demand, semiconductor fab utilization rates are also low and semiconductor capital equipment orders have been impacted for some vendors and market segments. As a result of these trends, customers are being cautious with their spend and some purchase cycles are lengthening and other purchase decisions are being delayed, particularly with respect to larger deals. |
| ● | 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 the People’s Republic of China (“P.R.C.”), Russian Federation, and Belarus. After an internal evaluation, we determined that a large percentage of our software products are not of U.S. origin and are, thus, not subject to the EAR. Our standard operations include development, distribution processes, software download sites, and professional service centers and processes located in various geographies around the world to better serve our customers. Some customers in the P.R.C., in particular, have nonetheless 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. In October 2022 and October 2023, the U.S. government issued interim final rules adding novel and complex export control restrictions, some exclusions, and requests for public comment. In light of questions about some restrictions and guidance, the U.S. government announced on November 6, 2023 that it was developing revisions to such rules to make corrections and clarifications. We believe the government will issue these revisions in 2024, along with additional restrictions. U.S. government policy and regulation remain fluid and uncertain. 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 ICs offered by U.S. companies and has been developing its legal authorities to counter foreign sanctions. The U.S. government is renewing and amplifying 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. We will continue to monitor for any further trade restrictions, other regulatory or policy changes by the U.S. or foreign governments and any actions in response. The uncertainty caused by these recent regulations and the potential for additional future restrictions could negatively affect our future sales in the P.R.C. market. |
| ● | Investments in semiconductor manufacturing. In 2022, the U.S. Congress passed into law funding programs from the bipartisan CHIPS Act, authorizing the Department of Commerce, Department of Defense, and Department of State to develop onshore domestic manufacturing of semiconductors considered critical to U.S. competitiveness |
40 Early decisions by the Biden U.S. Presidential Administration confirm continuity of a bipartisan consensus in the U.S. government favoring increased confrontation of China in trade practices and economic matters, national security, and human rights. The Biden Administration views technology as a domain of strategic competition in which the U.S. and allies must stay ahead of China. The Administration has reaffirmed the U.S. government consensus identifying semiconductor, artificial intelligence, and 5G technologies, and protection of U.S. supply chains, as priority efforts. It appears that the Administration may now augment ongoing U.S. efforts by enlisting the cooperation of allied countries in both advanced development and protection against P.R.C. use of U.S. and allied advances. The prior U.S. presidential administration expanded and intensified export controls and sanctions, including addition of many P.R.C. companies to the U.S. Export Administration Regulations (EAR) Entity List. These listings restrict supply to designees of items that are subject to the EAR. After an internal evaluation, we determined that a large percentage of our software products are not of U.S. origin and are, thus, not subject to the EAR. Our standard operations include development, distribution processes, software download sites, and professional service centers and processes located in various geographies around the world to better serve our customers. Some customers have nonetheless 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. The continuing tension between the U.S. and P.R.C. governments in trade and security matters or the perception of that tension could lead to disruptions or reductions in international trade, deter or prevent purchasing activity of customers, and negatively impact us in our China sales and financial results.
Our Strategic Partnership with Advantest
On July 29, 2020, we entered into a strategic partnership with Advantest Corporation through its wholly-owned subsidiary, Advantest America, Inc., (collectively, “Advantest”) that includes: (i) a significant agreement for our assistance in development of cloud-based applications for Advantest tools that leverage our Exensio software analytics platform; (ii) a commercial agreement providing for the license to third parties of solutions that result from the development work that combine Advantest’s testing applications and our Exensio platform; (iii) a 5-year cloud-based subscription for our Exensio analytics platform and related services; and (iv) the purchase of 3,306,924 shares of our common stock, for aggregate gross proceeds of $65.2 million. Concurrent with the share purchase, Advantest Corporation also entered into multi-year voting and lock-up agreements.
We entered into this partnership to expand test and measurement solutions throughout the semiconductor value chain. We believe that the combination of our Exensio platform with Advantest’s advanced testing equipment will provide Advantest tool users with the ability to connect, test, measure, and analyze manufacturing data generated by the tools at any point in the semiconductor value chain, helping customers increase yield and reduce testing costs. Further, we believe collaboration with Advantest’s technology, direction connection to its customer relationships, and the breadth of its global footprint will enable us to both accelerate our technology roadmap and customer adoption of our AI-driven data analytics solutions across the supply chain.
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| | and national security. It is expected that U.S. semiconductor companies, especially manufacturers, will increase spending as a result of receiving funds under these programs. Recipients of funding under such programs may be required to agree to separate restrictions on certain commercial activity in the P.R.C., where we currently commercially operate. If our customers engage us for projects funded by these programs, we will evaluate all restrictions, and their impact on our existing business, before entering into any contracts associated with these programs. |
| ● | Geopolitical tensions/conflicts. Geopolitical tensions and conflicts in various locations around the world continue to increase, including on the issue of Taiwan in Asia, Ukraine and Russia, and most recently between Israel and Hamas. These current situations have created volatility in the global financial markets and may have further global economic consequences, including potential disruptions of the global supply chain and heightened volatility of commodity and raw material prices. This has 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 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 Israel-Hamas conflict) or China sales (with respect to U.S.-P.R.C. tensions) and financial results in general (with respect to global tensions). |
Cimetrix Acquisition
On December 1, 2020, we completed the acquisition of Cimetrix for approximately $35.0 million in cash consideration, net of cash on Cimetrix’s balance sheet as of closing, and subject to other closing adjustments, for all of the outstanding equity of Cimetrix. The combination of Cimetrix connectivity products with our Exensio platform, which leverages machine learning, is intended to enable IC, assembly, and equipment manufacturer customers to extract more intelligence from their tools, not just data, to build more reliable chips and systems at lower manufacturing costs. We accounted for this acquisition 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 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 we anticipates from the acquired workforce and expectation for expanded sales opportunities to foster further business growth. Identifiable definite-lived intangible assets comprised of developed technology, customer relationships, non-competition agreements, trademark and trade names, and in-process research and development (“IP R&D”). For further information about this acquisition, see Note 4 of “Notes to Consolidated Financial Statements” (Item 8 of Part II of this Report).
Financial Highlights The following are our financial highlights for the year ended December 31, 2020: 2023: | ● | •
| Total revenues were $88.0$165.8 million, which was an increase of $2.5$17.3 million, or 3%12%, compared to the year ended December 31, 2019.2022. Analytics revenue was $57.2$152.1million, an increase of $21.6 million, or 17%, compared to the year ended December 31, 2022. The increase in Analytics revenue was driven by increases in revenue from DFI and CV systems, including sales-type leases of DFI assets, and an increase in revenue from Exensio software licenses, partially offset by a decrease in revenues from Cimetrix software licenses due to a decrease in orders for runtime licenses. Integrated Yield Ramp revenue decreased $4.3 million, or 24%, compared to the year ended December 31, 2022, primarily due to a decrease in hours worked on fixed fee engagements and a decrease in Gainshare from decreased customer wafer shipments at non-leading-edge nodes. |
| ● | Costs of revenues increased $3.8 million for the year ended December 31, 2020, which was an increase of $7.6 million,2023, compared to the year ended December 31, 2019. The increase in Analytics revenue was driven by a $10.2 million increase,2022, primarily due to an increaseincreases in hardware costs, travel expenses, subcontractor fees from Exensioand software licenses higher hours for characterization services worked across multiple contracts and customers, and revenue from Cimetrix,maintenance costs. These increases were partially offset by a $2.6 million decreasedecreases in personnel-related costs.revenue from DFI systems |
| ● | . Integrated Yield Ramp revenue decreased $5.1 million for the year ended December 31, 2020, compared to the year ended December 31, 2019, due primarily to a $1.7 million decrease in revenue from lower hours worked across multiple contracts and customers and $3.3 million less in revenue for the period when compared to the non-recurring revenue from a customer contract amendment, whichNet income was recognized in 2019. | | | | | •
| Costs of revenues increased $3.3$3.1 million for the year ended December 31, 2020,2023, compared to the year ended December 31, 2019, primarily due to (i) a $2.9 million increase in cloud-delivery related costs and depreciation expensenet loss of test equipment,(ii) a $1.4 million increase in personnel-related costs, (iii) a $0.8 million increase in direct costs related to third-party software royalty and licenses expense, equipment and hardware expense, and the timing of deferral of contract costs, and (iv) a $0.1 million increase in amortization intangible assets related to our acquisition of Cimetrix, all partially offset by a $1.8 million decrease in travel expenses resulting from reduced business travel due to the global COVID-19 pandemic, and a $0.2 million decrease in facilities and other expenses.
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| Net loss was $40.4 million, compared to $5.4$3.4 million for the year ended December 31, 2019.2022. The increase in net lossincome was primarily attributable to a (i) $24.2 millionan increase in income tax provision due primarily to the recognition of a full valuation allowance against our U.S. net deferred tax assets,total revenues, (ii) a $3.3 millionan increase in costs of revenues,interest income, (iii) a $8.3 million increase in operating expenses as we continued to make investmentsdecrease in research and development expenses and sales and marketing activities, and due to an increase(iv) a decrease in income tax expenses, partially offset by increases in (a) costs of revenues, (b) selling, general, and administrative expenses, which were primarily duerelated to the acquisition of Cimetrix, increased subcontractorincreases in personnel-related costs, travel expenses, and legal fees related to anthe arbitration proceeding over a disputed customer contract, third-party cloud-services related costs, property tax expenses, general legal expenses, trade conference-related expenses, and (iv) a $1.5 million increase in interestbusiness acquisition costs, and other expense (income), net, all partially offset by a $2.5 million increase in revenues. (c) foreign currency transaction exchange losses. |
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| Cash, cash equivalents and short-term investments increased $47.7decreased $3.7 million to $145.3$135.5 million atas of December 31, 2020,2023, from $97.6$139.2 million atas of December 31, 2019,2022, primarily due to the proceeds from the issuancepayments to vendors, payments of ouraccrued bonuses and income taxes, purchases of and prepayments for property and equipment, payments of taxes related to net share settlement of equity awards, payments for a business acquisition, and repurchases of common stock, in connection with our strategic partnership with Advantest and cash generated from the operating activities, partially offset by cash used in investing activities, primarily due to $28.6 million incollection from customers, interest income from cash, used in the period for the acquisitioncash equivalents and short-term investments, and proceeds from purchases under our employee stock purchase plan and exercise of Cimetrix and cash used for additions to property and equipment for our DFI™ solution, including investments in constructing eProbe tools. stock options. |
Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Notes 1 and 2 of Notes to the Consolidated Financial Statements describe the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. We consider the accounting policies described below to be our critical accounting policies. These critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements and actual results could differ materially from the amounts reported based on these policies. Revenue Recognition We derive revenue from two sources: Analytics and Integrated Yield Ramp. Analytics Revenue Analytics revenue is derived from the following primary offerings: licenses and services for software,standalone Software (which consists primarily of Exensio and Cimetrix products), SaaS Data Connectivity(which consists primarily of Exensio products), and Equipment Control Software, DFI™DFI and CV®CV systems (including Characterization services) that do not include performance incentives based on customers’ yield achievement, and services related to the foregoing. 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 obligationdistinct from the services offered by us. Revenue from post-contract support is recognized over the contract term on a straight-line basis, because we are providing (i) support and (ii) unspecified software updates on a when-and-if available basis over the contract term. Revenue from time-based-licensed software is allocated to each performance obligation and is recognized either at a point in time or over time as follows. The license component is recognized at the time when control transfers to customers, with the post-contract support component recognized ratably over the committed term of the contract. For contracts with any combination of licenses, support, and other services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using the standalone selling price (or SSP)(“SSP”) attributed to each performance obligation. Revenue from Exensio SaaS arrangements, which allow for the use of a cloud-based software product or service over a contractually determined period of time without the customer having to taketaking possession of software, is accounted for as a subscriptionsubscriptions and is recognized as revenue ratably, on a straight-line basis, over the subscription period beginning on the date the service is first made available to customers. For contracts with any combination of SaaS and related services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using 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, we allocate revenue to all deliverables based on their SSPs. For these contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation. Where there are not discrete performance obligations, historically, revenue is primarily recognized as services are performed using a percentage of completion method based on costs or labor-hours inputs, whichever is the most appropriate measure of the progress towards completion of the contract. The estimation of percentage of completion method is complex and subject to many variables that require significant judgement.judgment. 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 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 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, net and continue to be depreciated. Assets subject to sales-type leases are derecognized from Property and equipment 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 Consolidated Balance Sheets. Integrated Yield Ramp Revenue Integrated Yield Ramp revenue is derived from our IYRyield ramp engagements that include Gainshare or other performance incentives based on customers’ yield achievement and Gainshare royalties, typically based on customer’s wafer shipments, pertaining to these fixed-price contracts, which royalties are variable. achievement. 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.completion method based on costs or labor-inputs, whichever is the most appropriate measure of the progress towards completion of the contract. Where there are distinct performance obligations, we allocate revenue to all deliverables based on their SSPs and allocate the transaction price of the contract to each performance obligation on a relative basis using SSP. Similar to the services provided in connection with DFI systems and CV systems that are contributing to Analytics revenue, due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex and subject to many variables that require significant judgment. The Gainshare royalty contained in yield ramp contracts is a variable fee related to continued usage of our IP after the fixed-fee service period ends, based on a customer’sthe customers’ yield achievement. Revenue derived from Gainshare is contingent upon our customers reaching certain defined production yield levels. Gainshare royalty periods are generally subsequent to the delivery of all contractual services and performance obligations. We are required to record Gainshare as a usage-based royalty revenuederived from customers’ usage of IP and record it in the same period in which the usage occurs. Because we generally do not receive the acknowledgment reports from our 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, we accrue the related revenue based on estimates of customers underlying sales achievement. Our 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 customers’ 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. Income Taxes We are required to assess whether it is “more-likely-than-not”“more likely than not” that we will realize our deferred tax assets. If we believe that they are not likely to be fully realizable before the expiration dates applicable to such assets, then to the extent we believe that recovery is not likely, we must establish a valuation allowance. Based on all available evidence, both positive and negative, we determined a full valuation allowance was still appropriate for our U.S. federal and state net deferred tax assets (or DTAs) in the fourth quarter of 2020,(“DTAs”), primarily driven by an increaseda cumulative loss incurred over the 12-quarter period ended December 31, 2020, near term forecasted book losses,2023, and the likelihood that we willmay not utilize tax attributes before they begin to expire at the end of 2022.expire. The valuation allowance was approximately $41.9$64.2 million and $10.5$59.2 million as of December 31, 20202023 and 2019,2022, respectively. As of December 31, 2019, the valuation allowance was primarily related to California R&D tax credits and California net operating losses (or NOLs) related to an acquisition that we currently do not believe to be “more-likely-than-not” to be ultimately realized. We will continue to evaluate the need for a valuation allowance and may change our conclusion in a future period based on changes in facts (e.g., 12-quarter cumulative profit, significant new revenue, etc.). If we conclude that we are more likely than not to utilize some or all of our U.S. DTAs, we will release some or all of our valuation allowance and our tax provision will decrease in the period in which we make such a determination. We evaluate our DTAs for realizability considering both positive and negative evidence, including our historical financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, tax planning strategies and any carryback availability. In evaluating the need for a valuation allowance, we estimate future taxable income based on management approved business plans. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between future projected operating performance and actual results. Changes in the net DTAs, less offsetting valuation allowance, in a period are recorded through the income tax provision and could have a material impact on the Consolidated Statements of Comprehensive Loss.Income (Loss). Our income tax calculations are based on the application of applicable U.S. federal, or state, and/or foreign tax law. Our tax filings, however, are subject to audit by the respective tax authorities. Accordingly, we recognize tax liabilities based upon our estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the Consolidated Statements of Comprehensive Loss. AtIncome (Loss). As of December 31, 2020,2023, no deferred taxes have been provided on undistributed earnings from our international subsidiaries. We intend to reinvest the earnings of our non-U.S. subsidiaries in those operations indefinitely. As such, we have not provided for any foreign withholding taxes on the earnings of foreign subsidiaries as of December 31, 2020.2023. The earnings of our foreign subsidiaries are taxable in the United StatesU.S. in the year earned under the Global Intangible Low-Taxed Income rules implemented under 2017 Tax Cuts and Jobs Act. On March 27, 2020, the Coronavirus Aid, Relief, and Economic SecurityThe CHIPS Act (the “CARES Act”) was enacted.signed into U.S. law on August 9, 2022. The CARESCHIPS Act includes, among other things, refundable payroll tax credits, deferment of some employer FICA taxes, allowance of net operating loss carrybacks for upis intended to five years, alternative minimum tax credit refunds, and technical amendments regarding the income tax depreciation of qualified improvement property placedincrease domestic competitiveness in service after December 31, 2017. The removal of certain limitations on the utilization of NOLs resulted in our recognition of an income tax benefit of $1.2 million from the carryback of federal NOLs during the year ended December 31, 2020.
Software Development Costs
Internally developed software is software developed to meet our internal needs to provide certain services to our customers. Our capitalized software development costs consist of internal compensation related costs and external direct costs incurred during the application development stage and are amortized over their useful lives, which is generally five to six years. The costs to develop software that is marketed externally have not been capitalized as we believe our current software development process is essentially completed concurrent with the establishment of technological feasibility. As such, all related software development costs are expensed as incurred and included insemiconductor manufacturing capacity, increase research and development expense in computing, AI, clean energy, and nanotechnology through federal government programs and incentives over the next ten years. The CHIPS Act includes an advanced manufacturing tax credit equal to 25% of qualified investments in property purchased for an advanced manufacturing facility. We have begun to see some benefit from the CHIPS Act to our Consolidated Statementsbusiness, but the extent of Comprehensive Loss. future benefit is still unknown.
Stock-Based Compensation We account for stock-based compensation using the fair value method, which requires us to measure stock-based compensation based on the grant-date fair value of the awards and recognize the compensation expense over the requisite service period. As stock-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The fair value of our restricted stock units is equal to the market value of our common stock on the date of the grant. These awards are subject to time-based vesting which generally occurs over a period of four years. The fair value of our stock options and purchase rights granted under employee stock purchase plans is estimated using the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life and interest rates. The expected volatility is based on the historical volatility of our common stock over the most recent period commensurate with the estimated expected life of our stock options.options and purchase rights granted under employee stock purchase plans. The expected life is based on historical experience and on the terms and conditions of the options granted and purchase rights granted under employee stock options granted.purchase plans. The interest rate assumption is based upon observed Treasury yield curve rates appropriate for the expected life of our stock options.options and purchase rights granted under employee stock purchase plans. Business Combinations We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values at the date of the business combination. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, estimated replacement costs and future expected cash flows from acquired customers, acquired technology, acquired patents, and trade names from a market participant perspective, useful lives and discount rates. The estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities affects our amortization expense, as acquired finite-lived intangible assets are amortized over thetheir useful life, whereas any indefinite lived intangible assets, including IP R&Din-process research and development and goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.earnings in the Consolidated Statements of Comprehensive Income (Loss). Valuation of Long-lived Assets including Goodwill and Intangible Assets We record goodwill when the purchase consideration of an acquisition exceeds the fair value of the net tangible and identified intangible assets as of the date of acquisition. We have one operating segment and one operating unit. We perform an annual impairment assessment of goodwill during the fourth quarter of each calendar year or more frequently, if required to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If the carrying amount exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill. There was no impairment of goodwill for the yearyears ended December 31, 2020 2023, 2022 and 2021. Our long-lived assets, excluding goodwill, consist of property, equipment, and intangible assets. We periodically review our long-lived assets for impairment. For assets to be held and used, we initiate our review whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset group may not be recoverable. Recoverability of an asset group is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset group is expected to generate. If it is determined that an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds its fair value. There was no impairment of long-lived assets including intangible assets for the yearyears ended December 31, 2020.2023, 2022 and 2021. In fiscal 2021, we wrote down the value of property and equipment aggregating $3.2 million pertaining to our first-generation of e-beam tools for DFI™ systems where carrying values may not be fully recoverable due to lack of market demand and future needs of our customers for these tools. Leases We have operating leases for our administrative and sales offices, research and development laboratory and clean room. We recognize our long-term operating lease rights and commitments as operating lease right-of-use assets, operating lease liabilities and operating lease liabilities, non-current, respectively, on our Consolidated Balance Sheets. We determine if an arrangement is, or contains, a lease at inception. Operating lease right-of-use assets, and operating lease liabilities are initially recorded based on the present value of lease payments over the lease term. Lease terms include the minimum unconditional term of the lease, and may include options to extend or terminate the lease when it is reasonably certain at the commencement date that such options will be exercised. The decision to include these options involves consideration of our overall future business plans and other relevant business economic factors that may affect our business. Since the determination of the lease term requires an application of judgment, lease terms that differ in reality from our initial judgment may potentially have a material impact on our Consolidated Balance Sheet.Sheets. In addition, our leases do not provide an implicit rate. In determining the present value of our expected lease payments, the discount rate is calculated using our incremental borrowing rate determined based on the information available, which requires additional judgment. Recent Accounting Pronouncements and Accounting Changes See our Note 1, “Description of Business and Summary of Significant Accounting Policies” of “Notes to Consolidated Financial Statements” included under Part II, Item 8 of this Form 10-K for a description of recent accounting pronouncements and accounting changes, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements. Results of Operations Discussion of Financial Data for the years ended December 31, 20202023 and 20192022 Revenues, Costs of Revenues, and Gross Margin | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | % | $ Change | % | % Change | % | $ Change | % | % Change | | | (Dollars in thousands) | 2023 | | 2022 | | 2021 | | 2022 to 2023 | | 2021 to 2022 | | Revenues: | | | | | | | | | | | | | | | | | | | | Analytics | $ | 152,085 | | $ | 130,480 | | $ | 93,415 | | $ | 21,605 | | 17 | % | $ | 37,065 | | 40 | % | Integrated Yield Ramp | | 13,750 | | | 18,069 | | | 17,645 | | | (4,319) | | (24) | % | | 424 | | 2 | % | Total revenues | | 165,835 | | | 148,549 | | | 111,060 | | | 17,286 | | 12 | % | | 37,489 | | 34 | % | Costs of revenues | | 51,749 | | | 47,907 | | | 44,193 | | | 3,842 | | 8 | % | | 3,714 | | 8 | % | Gross profit | $ | 114,086 | | $ | 100,642 | | $ | 66,867 | | $ | 13,444 | | 13 | % | $ | 33,775 | | 51 | % | Gross margin | | 69 | % | | 68 | % | | 60 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Analytics revenue as a percentage of total revenues | | 92 | % | | 88 | % | | 84 | % | | | | | | | | | | | Integrated Yield Ramp revenue as a percentage of total revenues | | 8 | % | | 12 | % | | 16 | % | | | | | | | | | | |
| | Year Ended December 31, | | | $ Change | | | % Change | | | | 2020 | | | 2019 | | | 2019 to 2020 | | (Dollars in thousands) | | | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | | | Analytics | | $ | 57,232 | | | $ | 49,627 | | | $ | 7,605 | | | | 15 | % | Integrated Yield Ramp | | | 30,814 | | | | 35,958 | | | | (5,144 | ) | | | (14 | )% | Total revenues | | $ | 88,046 | | | $ | 85,585 | | | $ | 2,461 | | | | 3 | % | Costs of revenues | | | 36,765 | | | | 33,474 | | | | 3,291 | | | | 10 | % | Gross profit | | $ | 51,281 | | | $ | 52,111 | | | $ | (830 | ) | | | (2 | )% | Gross margin | | | 58 | % | | | 61 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Analytics revenue as a percentage of total revenues | | | 65 | % | | | 58 | % | | | | | | | | | Integrated Yield Ramp revenue as a percentage of total revenues | | | 35 | % | | | 42 | % | | | | | | | | |
Analytics Revenue Analytics revenue was $57.2$152.1 million for the year ended December 31, 2020, which was2023, an increase of $7.6$21.6 million, or 17%, compared to the year ended December 31, 2019.2022. The increase in Analytics revenue was driven by a $10.2 million increase, primarily due toincreases in revenue from DFI and CV systems, including sales-type leases of DFI assets, and an increase in feesrevenue from Exensio software licenses, higher hours for characterization services worked across multiple contracts and customers, and revenue from Cimetrix, partially offset by a $2.6 million decrease in revenuerevenues from DFI systems.Cimetrix software licenses due to a decrease in orders for runtime licenses. Integrated Yield Ramp Revenue Integrated Yield Ramp revenue decreased $5.1was $13.8 million for the year ended December 31, 2020,2023, a decrease of $4.3 million, or 24%, compared to the year ended December 31, 2019,2022, primarily due primarily to a $1.7 million decrease in revenue from lower hours worked across multiple contractson fixed fee engagements and customers and $3.3 million lessa decrease in revenue for the period when compared to the non-recurring revenueGainshare from adecreased customer contract amendment, which was recognized in 2019. wafer shipments at non-leading-edge nodes. Our Integrated Yield Ramp revenue may continue to fluctuate from period to period primarily due to the contribution of Gainshare royalty, 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 our ability towhether we enter into new contracts containing Gainshare. Our revenues may also fluctuate in the future due to other 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, 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. ServicesService costs include material costs, hardware costs (including cost of leased assets under sales-type leases), personnel-related costs (including compensation, employee benefits, bonus and stock-based compensation and related benefits, expense), subcontractor costs, overhead costs, travel expenses, and allocated facilities-related costs. Software license costs consist of costs associated with third-party cloud-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 increase in costs of revenues of $3.3$3.8 million for the year ended December 31, 2020,2023, compared to the year ended December 31, 2019,2022, was primarily due to (i) a $2.9$3.5 million increase in cloud-delivery relatedhardware costs, and depreciation expense of test equipment, (ii) a $1.4$0.4 million increase in personnel-related costs,travel expenses, (iii) an $0.8a $0.2 million increase in direct costs related to third-party software royalty and licenses expense, equipment and hardware expense, and the timing of deferral of contract costs,subcontractor fees, and (iv) a $0.1$0.2 million increase in amortization intangible assets related to our acquisition of Cimetrix,software licenses and maintenance costs. These increases were partially offset by a $1.8$0.4 million decrease in travel expensespersonnel-related costs due to the global COVID-19 pandemic, and a $0.2 million decreaselower compensation expenses, partially offset by an increase in facilities and other expenses.stock-based compensation expense. Gross Margin Gross margin for the year ended December 31, 20202023, was 58%69% compared to 61%68% for the year-ago period,year ended December 31, 2022, or a decreasean increase of 3%.1 percentage point. The higher gross margin during the year ended December 31, 20192023, was primarily due to $4.5 million in nonrecurringhigher total revenue from a customer contract amendment recognized in such period.when compared to the year ended December 31, 2022. Operating Expenses: Research and Development | | Year Ended December 31, | | | $ Change | | | % Change | | | | 2020 | | | 2019 | | | 2019 to 2020 | | (Dollars in thousands) | | | | | | | | | | | | | | | | | Research and development | | $ | 34,654 | | | $ | 32,747 | | | $ | 1,907 | | | | 6 | % | As a percentage of total revenues | | | 39 | % | | | 38 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | % | $ Change | % | % Change | % | $ Change | % | % Change | | | (Dollars in thousands) | | 2023 | | 2022 | | 2021 | | 2022 to 2023 | | 2021 to 2022 | | Research and development | | $ | 50,736 | | $ | 56,126 | | $ | 43,780 | | $ | (5,390) | | (10) | % | $ | 12,346 | | 28 | % | As a percentage of total revenues | | | 31 | % | | 38 | % | | 39 | % | | | | | | | | | | |
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, including compensation and benefits, outside development services, travel, facilities cost allocations, and stock-based compensation charges. activities. Research and development expenses increaseddecreased $5.4 million for the year ended December 31, 2020,2023, compared to the year ended December 31, 2019,2022, primarily due to (i) a $0.7$5.8 million decrease in personnel-related costs mostly resulting from a lower stock-based and other compensation expenses, partially offset by worldwide salary increases and increases in headcount, and (ii) a $0.5 million decrease in facilities and IT-related costs including depreciation expense. These were partially offset by (a) a $0.3 million increase in personnel-related expense, (ii)third-party cloud-services related costs, (b) a $0.6$0.3 million increase in travel expenses, and (c) a $0.2 million increase in subcontractor expenses that is primarily related to our DFI systemsCimetrix and Exensio initiatives, (iii) a $0.5 million increase in facilities and information technology related-costs, (iv) a $0.4 million increase in software licenses and maintenance expense, and (v) a $0.3 million write-down in carrying value of certain equipment, all partially offset by a $0.6 million decrease in travel expenses due to the global COVID-19 pandemic. software. 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
| | Year Ended December 31, | | | $ Change | | | % Change | | | | 2020 | | | 2019 | | | 2019 to 2020 | | (Dollars in thousands) | | | | | | | | | | | | | | | | | Selling, general and administrative | | $ | 32,677 | | | $ | 26,299 | | | $ | 6,378 | | | | 24 | % | As a percentage of total revenues | | | 37 | % | | | 31 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | % | $ Change | % | % Change | % | $ Change | % | % Change | | | (Dollars in thousands) | | 2023 | | 2022 | | 2021 | | 2022 to 2023 | | 2021 to 2022 | | Selling, general, and administrative | | $ | 62,216 | | $ | 45,338 | | $ | 37,649 | | $ | 16,878 | | 37 | % | $ | 7,689 | | 20 | % | As a percentage of total revenues | | | 38 | % | | 31 | % | | 34 | % | | | | | | | | | | |
Selling, general, and administrative expenses consist primarily of personnel-related costs (including compensation, employee benefits, bonus, commission and benefitsstock-based compensation expense for sales, marketing, and general and administrative personnel,personnel), legal, tax and accounting services, marketing communications and trade conference-related expenses, third-party cloud-services related costs, travel, IT, and facilities cost allocations, and stock-based compensation expense. allocations. Selling, general, and administrative expenses increased $16.9 million for the year ended December 31, 2020,2023, compared to the year ended December 31, 2019,2022, primarily due to (i) a $1.8$14.5 million increase in personnel-related costs mainly resulting from increases in stock-based and other compensation expense, commission, employee benefit costs, headcount and worldwide salary increases, (ii) a $1.5$0.8 million increase in acquisition-related costs for Cimetrix,travel expenses, (iii) a $1.5$0.7 million increase in subcontractor expenses, (iv) a $1.3 million increase inlegal fees for legal services primarily related to the arbitration proceeding over a disputed customer contract, (v)(iv) a $0.6$0.4 million increase in third-party cloud-services related costs, (v) a $0.3 million increase in property tax expense, (vi) a $0.3 million increase in general legal expenses, (vii) a $0.3 million increase in trade conference-related expenses, and (vi)(viii) a $0.2 million increase from a write-down of equipment, allin business acquisition costs. These increases were partially offset by a $0.6$0.4 million decrease in travelsubcontractor 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 other acquired intangible assets | | Year Ended December 31, | | | $ Change | | | % Change | | | | 2020 | | | 2019 | | | 2019 to 2020 | | (Dollars in thousands) | | | | | | | | | | | | | | | | | Amortization of other acquired intangible assets | | $ | 741 | | | $ | 609 | | | $ | 132 | | | | 22 | % |
| | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | % | $ Change | % | % Change | % | $ Change | % | % Change | | | (Dollars in thousands) | | 2023 | | 2022 | | 2021 | | 2022 to 2023 | | 2021 to 2022 | | Amortization of acquired intangible assets | | $ | 1,285 | | $ | 1,270 | | $ | 1,255 | | $ | 15 | | 1 | % | $ | 15 | | 1 | % |
Amortization of other acquired intangible assets primarily consists of amortization of intangibles acquired as a result of certain business combinations. The increase in amortization of other acquired intangible assetscombinations and was consistent for the year ended December 31, 2020,2023 compared to the year ended December 31, 2019, was primarily related2022. Write-down in value of property and equipment | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | % | $ Change | % | % Change | % | $ Change | % | % Change | | | (Dollars in thousands) | | 2023 | | 2022 | | 2021 | | 2022 to 2023 | | 2021 to 2022 | | Write-down in value of property and equipment | | $ | — | | $ | — | | $ | 3,183 | | $ | — | | — | % | $ | (3,183) | | (100) | % |
In fiscal 2021, we wrote down the value of property and equipment aggregating $3.2 million pertaining to amortizationour first-generation of other acquired intangible assets in the acquisitione-beam tools for DFI™ systems where carrying values may not be fully recoverable due to lack of Cimetrix. market demand and future needs of our customers for these tools. Interest and Other Expense (Income), Net | | Year Ended December 31, | | | $ Change | | | % Change | | | | 2020 | | | 2019 | | | 2019 to 2020 | | (Dollars in thousands) | | | | | | | | | | | | | | | | | Interest and other expense (income), net | | $ | 1,269 | | | $ | (276 | ) | | $ | 1,545 | | | | (560 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | | % | | % | | | % | | | | | Year Ended December 31, | | $ Change | % | % Change | | $ Change | % | % Change | | | (Dollars in thousands) | | 2023 | | 2022 | | 2021 | | 2022 to 2023 | | 2021 to 2022 | | Interest and other expense (income), net | | $ | (5,020) | | $ | (2,562) | | $ | (683) | | $ | 2,458 | | 96 | % | $ | 1,879 | | 275 | % |
Interest and other expense (income), net primarily consists of interest income gains, and losses from foreign currency forward contracts, and foreign currency transaction exchange gains and losses. Interest and other expense (income), net increased $2.5 million for the year ended December 31, 2020,2023, compared to the year ended December 31, 2019,2022, primarily due to a decreasean increase in interest income due to lowerof $4.0 million from cash, cash equivalents and short-term investments resulting from higher interest rates, and a higherpartially offset by net unfavorable fluctuations in foreign currency exchange rates, partially offset by a decrease in loss related to foreign currency forward contracts and an increase in other income.rates.
Income Tax Provision (Benefit)Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | | | | | | | Year Ended December 31, | % | $ Change | % | % Change | % | $ Change | % | % Change | | | (Dollars in thousands) | | 2023 | | 2022 | | 2021 | | 2022 to 2023 | | 2021 to 2022 | | Income tax expense | | $ | (1,764) | | $ | (3,899) | | $ | (3,171) | | $ | (2,135) | | (55) | % | $ | 728 | | 23 | % |
| | Year Ended December 31, | | | $ Change | | | % Change | | | | 2020 | | | 2019 | | | 2019 to 2020 | | (Dollars in thousands) | | | | | | | | | | | | | | | | | Income tax provision (benefit) | | $ | 22,303 | | | $ | (1,942 | ) | | $ | 24,245 | | | | (1,248 | )% |
Our effectiveIncome tax rateexpense decreased $2.1 million for 2020 was (123.5%)the year ended December 31, which was different from2023, compared to the statutory federal tax rateyear ended December 31, 2022, primarily due to recognitiondecreases in state tax expense, foreign withholding taxes and changes in the geographic mix of a full valuation allowance against our U.S. net deferredworldwide income, which is subject to taxation at different statutory tax assets due to the uncertainty of the ultimate realization of the future benefits of such deferred tax assets, partially offset by an income tax benefit from the carryback of federal NOLs pursuant to the provisions of the CARES Act.
rates. 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 legislationslegislation in the United States and in foreign countries where 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 general accepted accounting principles and the effectiveness of our tax planning strategies. Discussion of Financial Data for the years ended December 31, 2022 and 2021 For a discussion of our results of operations for the years ended December 31, 2019,2022 and 2018,2021, please see our Annual Report on Form 10-K for the year ended December 31, 20192022, filed with the SEC on March 10, 2020. 1, 2023. Liquidity and Capital Resources As of December 31, 2020,2023, our working capital, defined as total current assets less total current liabilities, was $151.2$147.0 million, compared to $119.6$135.2 million as of December 31, 2019.2022. Cash, cash equivalents and short-term investments, on a consolidated basis, were $145.3$135.5 million as of December 31, 2020,2023, compared to $97.6$139.2 million as of December 31, 2019.2022. As of December 31, 20202023, and 2019,2022, cash and cash equivalents held by our foreign subsidiaries were $4.0$10.0 million and $3.8$8.8 million, 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, and other obligations, for at least the next twelve months. There has been no significant impact to our liquidity and capital resources from the global COVID-19 pandemic. For risk discussion about the continuing impactRepurchase of global COVID-19 pandemic on our operations or demand for our products, refer to Item 1A, Risk Factors on Part I of this Report.
Private Placement
Company’s Common Stock On July 29,June 4, 2020,we entered into the Company’s Board of Directors adopted a strategic partnership with Advantest, which includedstock repurchase program (the “2020 Program”) to repurchase up to $25.0 million of the sale to Advantest America, Inc. of 3,306,924 shares of ourCompany’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, over the next two years. During the year ended December 31, 2022, 218,858 shares were repurchased by the Company under the 2020 Program at a purchasean average price of $19.7085$26.40 per share for an aggregate gross proceedstotal price of $65.2 million on July 30, 2020. All of$5.8 million. During the year ended December 31, 2021, 251,212 shares were offeredrepurchased by the Company under the 2020 Program at an average price of $18.01 per share for an aggregate total price of $4.5 million. In total, 470,070 shares were repurchased under the 2020 Program at an average price of $21.91 per share, for an aggregate total price of $10.3 million. On April 11, 2022, the Board of Directors terminated the 2020 Program, and sold by us pursuantadopted a new program (the “2022 Program”) to an exemption from the registration requirements of the Securities Act 1933, as amended. Cimetrix Acquisition
As of December 31, 2020, payment made for the Cimetrix acquisition, net of cash acquired, amountedrepurchase up to $28.6 million. The Company held back $3.5$35.0 million of the purchaseCompany’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, from time to time, over the next two years. During the year ended December 31, 2023, 21,340 shares were repurchased by the Company under the 2022 Program at an average price (the “Holdback Amount”) to satisfy adjustments toof $34.81 per share for an aggregate total price of $0.7 million. During the closing balance sheet and claimsyear ended December 31, 2022, 714,600 shares were repurchased by the Company under the 2022 Program at an average price of $23.36 per share for indemnity arising outan aggregate total price of breaches$16.7 million. In total, the Company has repurchased 735,940 shares under the 2022 Program at an average price of certain representations, warranties and covenants, and certain other enumerated items in the merger agreement. The Holdback Amount, as adjusted, is expected to be paid to the participating equity holders in 2021 on approximately the one-year anniversary$23.69 per share for an aggregate total price of the closing.$17.4 million.
Consolidated Statements of Cash Flows Data | | | | | | | | | | | | | | | | | | Year Ended December 31, | % | $ Change | (In thousands) | | 2023 | | 2022 | | 2021 | % | 2022 to 2023 | % | 2021 to 2022 | Net cash flows provided by (used in): | | | | | | | | | | | | | | | | Operating activities | | $ | 14,600 | | $ | 32,298 | | $ | 4,243 | | $ | (17,698) | | $ | 28,055 | Investing activities | | | (28,991) | | | 84,599 | | | (4,667) | | | (113,590) | | | 89,266 | Financing activities | | | (5,890) | | | (24,307) | | | (5,525) | | | 18,417 | | | (18,782) | Effect of exchange rate changes on cash and cash equivalents | | | (365) | | | (650) | | | (182) | | | 285 | | | (468) | Net change in cash and cash equivalents | | $ | (20,646) | | $ | 91,940 | | $ | (6,131) | | $ | (112,586) | | $ | 98,071 |
| | Year Ended December 31, | | | $ Change | | | | 2020 | | | 2019 | | | 2019 to 2020 | | (In thousands) | | | | | | | | | | | | | Net cash flows provided by (used in): | | | | | | | | | | | | | Operating activities | | $ | 21,783 | | | $ | 24,590 | | | $ | (2,807 | ) | Investing activities | | | (150,502 | ) | | | (13,212 | ) | | | (137,290 | ) | Financing activities | | | 64,798 | | | | (9,835 | ) | | | 74,633 | | Effect of exchange rate changes on cash and cash equivalents | | | 131 | | | | (27 | ) | | | 158 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | | $ | (63,790 | ) | | $ | 1,516 | | | $ | (65,306 | ) |
Net Cash Provided by Operating Activities
Cash flow fromflows provided by operating activities during 2020 mostlythe year ended December 31, 2023, consisted of net loss,income, adjusted for certain non-cash items which primarily consisted of depreciation and amortization, share-basedstock-based compensation expense, amortization of acquired intangible expense, amortization of costs capitalized to obtain revenue contracts, net accretion of discounts on short-term investments and deferred tax assets. Cash generated fromnet change in operating assets and liabilities. Net cash flows provided by operating activities decreased by $2.8was $14.6 million for the year ended December 31, 2020,2023, compared to net cash flows provided by operating activities of $32.3 million for the year ended December 31, 2022. The $17.7 million decrease in cash flows provided by operating activities between the years was driven primarily by payments made to vendors and employees, including under the Company’s bonus plan, partially offset by an increase in net income compared to the year ended December 31, 2019, driven primarily by (i)2022. Net income was $3.1 million for the year ended December 31, 2023, compared to a $34.9 million increase in net loss (ii) a $27.9of $3.4 million increase in non-cash adjustments to net loss, primarily due to increase in deferred taxes of $25.5 million and increase in stock-based compensation expense of $1.0 million, and (iii) a $4.2 million increase in net change in operating assets and liabilities,for the year ended December 31, 2022. The major contributors to the net change in operating assets and liabilities for the year ended December 31, 2020,2023, were as follows: | ● | accountsAccounts receivable decreasedincreased by $8.1$2.7 million, primarily due to increased collectionsan increase in sales, an increase in unbilled accounts receivables due to timing of billing, and lowerrevenue recognition and higher contractual invoicing activity, during the fourth quarter of 2020;partially offset by collections from customers; |
| | | | ● | Prepaid expense and other non-currentcurrent assets decreasedincreased by $2.1$7.3 million, primarily due to a decrease in the noncurrent portion of unbilled receivables due to the timing of billing of contract assets related to fixed-price service contracts, an increase in lease receivable from sales-type leases, and revenue recognition;an increase in income tax receivable, partially offset by a decrease in prepaid expenses related to third party software licenses and cloud-subscription costs; |
| | | | ● | accrued compensation and related benefitsOther non-current assets increased by $1.9$4.2 million primarily due to non-current assets from sales-type leases, increases in non-current contract assets and costs capitalized to obtain revenue contracts, partially offset by the amortization of non-current prepaid expenses; |
| ● | Accounts payable decreased by $2.1 million primarily due to the timing of payments of accrued bonusesvendor invoices; and accrued payroll taxes, and increases in accrued vacation; and, |
| | | | ● | billings in excess of recognized revenuesAccrued compensation and deferred revenues and increasedrelated benefits decreased by $8.0$2.2 million primarily due to the timingpayments of billing and revenue recognition.accrued bonuses net of new bonus accruals, a decrease in accrued commissions, partially offset by additional contributions to the employee stock purchase plan. |
Net Cash Used inProvided by (Used in) Investing Activities Net cash used in investing activities increased by $137.3was $29.0 million for the year ended December 31, 2020,2023, compared to net cash provided by investing activities of $84.6 million for the year ended December 31, 2019.2022. For the year ended December 31, 2020,2023, cash used in investing activities primarily related to (i) purchases of $131.5 million short-term investments of $59.6 million, purchases of and prepayments for property (ii) a $28.6and equipment of $11.3 million primarily related to our DFI and CV systems, payment for thea business acquisition, net of Cimetrix, and (iii) a $7.0cash acquired, of $1.8 million, for equipment purchased and prepayment for our DFI system, including construction of additional eProbe tools, partially offset by $16.5 million proceeds from maturities and sales of short-term investments. investments of $43.8 million. For the year ended December 31, 2019,2022, cash provided by investing activities primarily related to proceeds from maturities and sales of short-term investments of $151.5 million, partially offset by purchases of short-term investments of $58.3 million, and purchases of and prepayments for property and equipment of $8.4 million primarily related to our DFI systems and CV systems. Net Cash Used in Financing Activities Net cash used in investing activities related to (i) $10.6 million of property and equipment purchased primarily related to the construction of our DFI™ assets and expansion of our research and development laboratory and clean room, and (ii) a $2.7 million payment for acquisition of certain assets from StreamMosaic, Inc. Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities increased by $74.6was $5.9 million for the year ended December 31, 2020,2023, compared to net cash used in financing activities of $24.3 million for the year ended December 31, 2019.
2022. For the year ended December 31, 2020,2023, net cash provided byused in financing activities primarily consisted of $65.1 million net proceeds from the issuance of common stock in connection with the Securities Purchase Agreement with Advantest, and $4.2 million of proceeds under our Employee Stock Purchase Plan and the exercise of stock options, partially offset by $4.5$9.5 million in cash payments for taxes related to net share settlement of equity awards. shares of our common stock and, partially offset by $4.3 million of proceeds from our employee stock purchase plan and exercise of stock options. For the year ended December 31, 2019,2022, net cash used in financing activities primarily consisted of $9.6$22.5 million in cash used tofor the repurchase of shares of our common stock and $2.7$6.5 million in cash payments for taxes related to net share settlement of equity awards, partially offset by $2.7$4.7 million of proceeds underfrom our Employee Stock Purchase Planemployee stock purchase plans and the exercise of stock options. Related Party Transactions Refer to Note 3, Strategic13, “Strategic Partnership Agreement with Advantest and Related Party TransactionsTransactions” of the Notes to Consolidated Financial Statements (Item 8 of Part II of this Annual Report) for a discussion on related party transactions between the Company and Advantest. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. Contractual Obligations The following table summarizes our known contractual obligations (in thousands) as of December 31, 2020: 2023 (in thousands): | | Payments Due by Period | | Contractual Obligations | | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | 2026 and thereafter | | | Total | | Operating lease obligations(1) | | $ | 1,967 | | | $ | 1,704 | | | $ | 1,145 | | | $ | 812 | | | $ | 827 | | | $ | 2,154 | | | $ | 8,609 | | Purchase obligations(2) | | | 10,332 | | | | 2,034 | | | | 363 | | | | 320 | | | | 321 | | | | — | | | | 13,370 | | Total(3) | | $ | 12,299 | | | $ | 3,738 | | | $ | 1,508 | | | $ | 1,132 | | | $ | 1,148 | | | $ | 2,154 | | | $ | 21,979 | |
| | | | | | | | | | | | | | | | | | | | | Payments Due by Period | | | | | | | | | | | | | | | | | | | | Contractual Obligations | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Total | Operating lease obligations (1) | | $ | 1,706 | | $ | 1,611 | | $ | 1,039 | | $ | 916 | | $ | 551 | | $ | 5,823 | Purchase obligations (2) | | | 17,557 | | | 7,290 | | | 1,097 | | | 244 | | | 61 | | | 26,249 | Total (3) | | $ | 19,263 | | $ | 8,901 | | $ | 2,136 | | $ | 1,160 | | $ | 612 | | $ | 32,072 |
| (1) | Refer to Note 75 of “Notes to Consolidated Financial Statements” (Item 8 of Part II of this Annual Report) for further discussion. |
| | | | (2) | Purchase obligations consist of agreements to purchase goods and services entered in the ordinary course of business. |
| | | | (3) | The contractual obligation table above excludes liabilities for uncertain tax positions of $2.9$2.6 million, which are not practicable to assign to any particular years due to the inherent uncertainty of the tax positions. See Note 129 of “Notes to Consolidated Financial Statements” (Item 8 of Part II of this Annual Report) for further discussion. |
Item 7A. 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. As of December 31, 2020,2023, we had cash and cash equivalents and short-term investments of $145.3$135.5 million. Cash and cash equivalents consisted of cash and highly liquid money market instruments and short-terminstruments. Short-term investments consisted of U.S. Treasury bills.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 at December 31, 2020,2023, would cause the fair value of theseshort-term investments to decrease by an immaterial amount which would not have significantly impacted our financial position or results of operations. AtAs of December 31, 20202023, 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 withto any one financial institution by evaluating the creditworthiness of the financial institutions with which we invest and investing through more than one financial institution.
Foreign Currency and Exchange Risk. Certain of our receivables and payables for our international offices are denominated in the local currency, including the Euro, Yen and RMB. Therefore, a portion of our revenues and operating expenditures are subject to foreign currency risks. From time to time, we enter into foreign currency forward contracts to reduce the exposure to foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. We do not use foreign currency forward contracts for speculative or trading purposes. We record these forward contracts at fair value. The counterparty to these foreign currency forward contracts is a financial institution that we believe is creditworthy, and therefore, we believe the credit risk of counterparty non-performance is not significant. The change in fair value of these contracts is recorded intoin earnings as a component of other income (expense), net and offsets the change in fair value of foreign currency denominated monetary assets and liabilities, which is also recorded in other income (expense), net. As of December 31, 2020,2023, we had no outstanding forward contracts.
Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of PDF Solutions, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of PDF Solutions, Inc. (a Delaware corporation) and its subsidiaries (the “Company”) as of December 31, 20202023 and 2019,2022, and the related consolidated statements of comprehensive loss,income (loss), stockholders’ equity, and cash flows for each of the twothree years in the period ended December 31, 2020,2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the twothree years in the period ended December 31, 2020,2023, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, (COSO), and our report dated March 11, 2021,February 27, 2024, expressed an unqualified opinion. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionopinions on the critical audit matter or on the accounts or disclosures to which it relates. they relate. Revenue Recognition As described in Note 2 to the consolidated financial statements, the Company derives revenue from Analytics and Integrated Yield Ramp Revenue.Ramp. Contracts with customers can include various combinations of licenses, subscriptions, products and services, some of which are distinct and are accounted for as separate performance obligations. Significant judgment is exercised by the Company in determining revenue recognition for customer agreements, including determining whether licenses, subscriptions, and services are distinct performance obligations, determining the standalone selling price (or SSP)(“SSP”) attributed to each performance obligation, establishing the pattern of delivery for each distinct performance obligation, and estimating variable consideration when determining the amount of revenue to recognize. In addition, for revenue under project-based contracts for fixed-price services, revenue is recognized as services are performed using a percentage-of-completion (or POC)(“POC”) method based on costs or labor-hours input method. Estimated costs to complete each contract are based on i) future labor and product costs and ii) expected productivity efficiencies. Changes in these estimates can have a material effect on revenue recognized and/or related cost.costs. Finally, the Company recognizedrecognizes Gainshare royalty revenue in the same period in which the usage occurs. The Company accrues the related revenue based on estimates of customers’ underlying sales achievements. These estimates are based on historical data, trends, seasonality, changes in contract rate, knowledge of changes in the industry and changes in the customer’s manufacturing environment learned through discussions with customers and sales personnel. The principal audit considerations for our determination that performing procedures related to the Company’s revenue recognition for customer agreements is a critical audit matter are the significant amount of judgment required by management in this process. Significant judgment is required in determining SSP as the Company rarely licenses software on a standalone basis, so the Company is required to estimate the range of SSPs for each performance obligation, which in turn ledleads to significant auditor judgment, subjectivity and effort in performing audit procedures in assessing the allocation of SSPs to performance obligations. In addition, significant judgment is required in determining the total estimated contract costs for fixed-price contracts, which in turn ledleads to significant auditor judgment, subjectivity, and effort in performing audit procedures and in evaluating audit evidence relating to the total estimated contract costs. Significant judgment is also required in recording Gainshare royalty revenue in the same period in which the usage occurs. The Company generally does not receive the acknowledgment reports from customers during a given quarter, so the Company is required to accrue the related revenue based on estimates of customers underlying sales achievement, which in turn ledleads to significant auditor judgment, subjectivity, and effort in evaluating the reasonableness of these estimates based on historical data, trends, seasonality and other factors. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of internal controls relating to the revenue recognition process, including internal controls related to (1) the identification of distinct performance obligations and data used to establish SSP for licenses, subscriptions, products and services, (2) project estimates to completion for fixed fee arrangements accounted for under POC and (3) estimates of Gainshare royalty revenue accrual and subsequent true-ups. These procedures also included, among others, evaluating management’s significant accounting policies related to these customer agreements for reasonableness. In addition, for a sample of customer agreements, we obtained and read contract source documents, including master agreements and other documents that were part of the agreement, tested management’s identification of significant terms for completeness, including the identification of distinct performance obligations and variable consideration, assessed the terms in the customer agreements and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions, and tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the consolidated financial statements. In addition, we evaluated the reasonableness of management’s estimates of SSP for projects and services that are not sold separately, where applicable, costs to complete for project-based contracts for fixed-price services and customers’ underlying achievements for royalty revenue. /s/ BPM LLP We have served as the Company’s auditor since 2018. /s/ BPM LLP
San Jose, CACalifornia March 11, 2021February 27, 2024
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of PDF Solutions, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of PDF Solutions, Inc. (a Delaware corporation) and its subsidiaries (the “Company”)“Company) as of December 31, 2020,2023, based on criteria established in Internal Control—Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”(“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on the COSO criteria.criteria established in Internal Control—Integrated Framework (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 31, 20202023 and 20192022 and the related consolidated statements of comprehensive loss,income (loss), stockholders’ equity, and cash flows for each of the twothree years in the period ended December 31, 2020,2023 and the related notes (collectively referred to as the “consolidated financial statements”) of the Company, and our report dated March 11, 2021February 27, 2024 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Assessment of Internal ControlsControl Over Financial Reporting. Our responsibility is to express an opinion on the Company’sentity’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’sAn entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted accounting principles. A company’sin the United States of America. An entity’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;entity; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted accounting principles,in the United States of America, and that receipts and expenditures of the companyentity are being made only in accordance with authorizations of management and directors of the company;entity; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’sentity’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BPM LLP San Jose, California March 11, 2021February 27, 2024
PDF SOLUTIONS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except par values) | | December 31, | | | | 2020 | | | 2019 | | | | | | | | | | | ASSETS | | Current assets: | | | | | | | | | Cash and cash equivalents | | $ | 30,315 | | | $ | 97,605 | | Short-term investments | | | 114,981 | | | | 0 | | Accounts receivable, net of reserves of $963 in 2020 and $213 in 2019 | | | 34,140 | | | | 40,651 | | Prepaid expenses and other current assets | | | 13,944 | | | | 9,320 | | Total current assets | | | 193,380 | | | | 147,576 | | Property and equipment, net | | | 39,242 | | | | 40,798 | | Operating lease right-of-use assets, net | | | 6,672 | | | | 7,609 | | Goodwill | | | 15,774 | | | | 2,293 | | Intangible assets, net | | | 24,573 | | | | 6,221 | | Deferred tax assets | | | 249 | | | | 25,327 | | Other non-current assets | | | 7,690 | | | | 9,720 | | Total assets | | $ | 287,580 | | | $ | 239,544 | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | Current liabilities: | | | | | | | | | Accounts payable | | $ | 4,399 | | | $ | 7,636 | | Accrued compensation and related benefits | | | 8,339 | | | | 5,072 | | Accrued and other current liabilities | | | 6,309 | | | | 1,665 | | Operating lease liabilities – current portion | | | 1,926 | | | | 1,867 | | Deferred revenues – current portion | | | 19,895 | | | | 10,639 | | Billings in excess of recognized revenues | | | 1,337 | | | | 1,117 | | Total current liabilities | | | 42,205 | | | | 27,996 | | Long-term income taxes payable | | | 2,956 | | | | 5,368 | | Non-current operating lease liabilities | | | 6,516 | | | | 7,677 | | Other non-current liabilities | | | 1,397 | | | | 2,346 | | Total liabilities | | | 53,074 | | | | 43,387 | | Commitments and contingencies (Note 8) | | | | | | | | | Stockholders’ equity: | | | | | | | | | Preferred stock, $0.00015 par value, 5,000 shares authorized, no shares issued and outstanding | | $ | 0 | | | $ | 0 | | Common stock, $0.00015 par value, 70,000 shares authorized; shares issued 46,400 and 41,797, respectively; shares outstanding 36,850 and 32,503, respectively | | | 6 | | | | 5 | | Additional paid-in-capital | | | 407,173 | | | | 325,197 | | Treasury stock at cost, 9,550 and 9,294 shares, respectively | | | (96,215 | ) | | | (91,695 | ) | Accumulated deficit | | | (76,233 | ) | | | (35,870 | ) | Accumulated other comprehensive loss | | | (225 | ) | | | (1,480 | ) | Total stockholders’ equity | | | 234,506 | | | | 196,157 | | Total liabilities and stockholders’ equity | | $ | 287,580 | | | $ | 239,544 | |
| | | | | | | | | December 31, | | | 2023 | | 2022 | ASSETS | | | | | | | Current assets: | | | | | | | Cash and cash equivalents | | $ | 98,978 | | $ | 119,624 | Short-term investments | | | 36,544 | | | 19,557 | Accounts receivable, net of allowance for credit losses | | | 44,904 | | | 42,164 | Prepaid expenses and other current assets | | | 17,422 | | | 12,063 | Total current assets | | | 197,848 | | | 193,408 | Property and equipment, net | | | 37,338 | | | 40,174 | Operating lease right-of-use assets, net | | | 4,926 | | | 6,002 | Goodwill | | | 15,029 | | | 14,123 | Intangible assets, net | | | 15,620 | | | 18,055 | Deferred tax assets, net | | | 157 | | | 64 | Other non-current assets | | | 19,218 | | | 6,845 | Total assets | | $ | 290,136 | | $ | 278,671 | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | Current liabilities: | | | | | | | Accounts payable | | $ | 2,561 | | $ | 6,388 | Accrued compensation and related benefits | | | 14,800 | | | 16,948 | Accrued and other current liabilities | | | 4,633 | | | 5,581 | Operating lease liabilities – current portion | | | 1,529 | | | 1,412 | Deferred revenues – current portion | | | 25,750 | | | 26,019 | Billings in excess of recognized revenues | | | 1,570 | | | 1,852 | Total current liabilities | | | 50,843 | | | 58,200 | Long-term income taxes | | | 2,972 | | | 2,622 | Non-current portion of operating lease liabilities | | | 4,657 | | | 5,932 | Other non-current liabilities | | | 2,718 | | | 1,905 | Total liabilities | | | 61,190 | | | 68,659 | Commitments and contingencies (Note 6) | | | | | | | Stockholders’ equity: | | | | | | | Preferred stock, $0.00015 par value, 5,000 shares authorized, no shares issued and outstanding | | | — | | | — | Common stock, $0.00015 par value, 70,000 shares authorized; shares issued 49,749 and 48,613, respectively; shares outstanding 38,289 and 37,431, respectively | | | 6 | | | 6 | Additional paid-in capital | | | 473,295 | | | 447,415 | Treasury stock at cost, 11,460 and 11,182 shares, respectively | | | (143,923) | | | (133,709) | Accumulated deficit | | | (98,045) | | | (101,150) | Accumulated other comprehensive loss | | | (2,387) | | | (2,550) | Total stockholders’ equity | | | 228,946 | | | 210,012 | Total liabilities and stockholders’ equity | | $ | 290,136 | | $ | 278,671 |
See accompanying notesAccompanying Notes to consolidated financial statements.Consolidated Financial Statements.
PDF SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS) (in thousands, except per share amounts) | | Year Ended December 31, | | | | 2020 | | | 2019 | | Revenues: | | | | | | | | | Analytics | | $ | 57,232 | | | $ | 49,627 | | Integrated Yield Ramp | | | 30,814 | | | | 35,958 | | Total revenues | | | 88,046 | | | | 85,585 | | | | | | | | | | | Costs and Expenses: | | | | | | | | | Costs of revenues | | | 36,765 | | | | 33,474 | | Research and development | | | 34,654 | | | | 32,747 | | Selling, general and administrative | | | 32,677 | | | | 26,299 | | Amortization of other acquired intangible assets | | | 741 | | | | 609 | | Restructuring charges | | | 0 | | | | 92 | | Interest and other expense (income), net | | | 1,269 | | | | (276 | ) | Loss before income taxes | | | (18,060 | ) | | | (7,360 | ) | Income tax provision (benefit) | | | 22,303 | | | | (1,942 | ) | Net loss | | $ | (40,363 | ) | | $ | (5,418 | ) | | | | | | | | | | Other comprehensive income (loss): | | | | | | | | | Foreign currency translation adjustments, net of tax | | $ | 1,253 | | | $ | (204 | ) | Change in unrealized losses related to available-for-sale debt securities, net of tax | | | 2 | | | | 0 | | Total other comprehensive income (loss) | | $ | 1,255 | | | $ | (204 | ) | Comprehensive loss | | $ | (39,108 | ) | | $ | (5,622 | ) | | | | | | | | | | Net loss per share: | | | | | | | | | Basic | | $ | (1.17 | ) | | $ | (0.17 | ) | Diluted | | $ | (1.17 | ) | | $ | (0.17 | ) | | | | | | | | | | Weighted average common shares: | | | | | | | | | Basic | | | 34,458 | | | | 32,411 | | Diluted | | | 34,458 | | | | 32,411 | |
| | | | | | | | | | | | Year Ended December 31, | | | 2023 | | 2022 | | 2021 | Revenues: | | | | | | | | | | Analytics | | $ | 152,085 | | $ | 130,480 | | $ | 93,415 | Integrated Yield Ramp | | | 13,750 | | | 18,069 | | | 17,645 | Total revenues | | | 165,835 | | | 148,549 | | | 111,060 | | | | | | | | | | | Costs and Expenses: | | | | | | | | | | Costs of revenues | | | 51,749 | | | 47,907 | | | 44,193 | Research and development | | | 50,736 | | | 56,126 | | | 43,780 | Selling, general, and administrative | | | 62,216 | | | 45,338 | | | 37,649 | Amortization of acquired intangible assets | | | 1,285 | | | 1,270 | | | 1,255 | Write-down in value of property and equipment | | | — | | | — | | | 3,183 | Interest and other expense (income), net | | | (5,020) | | | (2,562) | | | (683) | Income (loss) before income tax expense | | | 4,869 | | | 470 | | | (18,317) | Income tax expense | | | (1,764) | | | (3,899) | | | (3,171) | Net income (loss) | | $ | 3,105 | | $ | (3,429) | | $ | (21,488) | | | | | | | | | | | Other comprehensive income (loss): | | | | | | | | | | Foreign currency translation adjustments, net of tax | | | 148 | | | (1,493) | | | (825) | Change in unrealized gain (loss) related to available-for-sale debt securities, net of tax | | | 15 | | | 7 | | | (14) | Total other comprehensive income (loss) | | | 163 | | | (1,486) | | | (839) | Comprehensive income (loss) | | $ | 3,268 | | $ | (4,915) | | $ | (22,327) | | | | | | | | | | | Net income (loss) per share: | | | | | | | | | | Basic | | $ | 0.08 | | $ | (0.09) | | $ | (0.58) | Diluted | | $ | 0.08 | | $ | (0.09) | | $ | (0.58) | | | | | | | | | | | Weighted average common shares used to calculate net income (loss) per share: | | | | | | | | | | Basic | | | 38,015 | | | 37,309 | | | 37,138 | Diluted | | | 38,937 | | | 37,309 | | | 37,138 |
SeeSee accompanying notesAccompanying Notes to consolidated financial statements.Consolidated Financial Statements.
PDF SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | Additional | | | | | | | | | | Other | | Total | | | Common Stock | | Paid-In | | Treasury Stock | | Accumulated | | Comprehensive | | Stockholders’ | | | Shares | | Amount | | Capital | | Shares | | Amount | | Deficit | | Loss | | Equity | Balances, January 1, 2021 | | 36,850 | | $ | 6 | | | 407,173 | | 9,550 | | $ | (96,215) | | $ | (76,233) | | $ | (225) | | $ | 234,506 | Repurchase of common stock | | (251) | | | — | | | — | | 251 | | | (4,523) | | | — | | | — | | | (4,523) | Issuance of common stock in connection with employee stock purchase plan | | 109 | | | — | | | 1,035 | | — | | | — | | | — | | | — | | | 1,035 | Issuance of common stock in connection with exercise of options | | 216 | | | — | | | 1,930 | | — | | | — | | | — | | | — | | | 1,930 | Vesting of restricted stock units | | 487 | | | — | | | — | | — | | | — | | | — | | | — | | | — | Purchases of treasury stock in connection with tax withholdings on vesting of restricted stock | | — | | | — | | | — | | 202 | | | (3,967) | | | — | | | — | | | (3,967) | Stock-based compensation expense | | — | | | — | | | 12,931 | | — | | | — | | | — | | | — | | | 12,931 | Comprehensive loss | | — | | | — | | | — | | — | | | — | | | (21,488) | | | (839) | | | (22,327) | Balances, December 31, 2021 | | 37,411 | | | 6 | | | 423,069 | | 10,003 | | | (104,705) | | | (97,721) | | | (1,064) | | | 219,585 | Repurchase of common stock | | (933) | | | — | | | — | | 933 | | | (22,471) | | | — | | | — | | | (22,471) | Issuance of common stock in connection with employee stock purchase plan | | 187 | | | — | | | 3,011 | | — | | | — | | | — | | | — | | | 3,011 | Issuance of common stock in connection with exercise of options | | 150 | | | — | | | 1,686 | | — | | | — | | | — | | | — | | | 1,686 | Vesting of restricted stock units | | 616 | | | — | | | — | | — | | | — | | | — | | | — | | | — | Purchases of treasury stock in connection with tax withholdings on vesting of restricted stock | | — | | | — | | | — | | 246 | | | (6,533) | | | — | | | — | | | (6,533) | Stock-based compensation expense | | — | | | — | | | 19,649 | | — | | | — | | | — | | | — | | | 19,649 | Comprehensive loss | | — | | | — | | | — | | — | | | — | | | (3,429) | | | (1,486) | | | (4,915) | Balances, December 31, 2022 | | 37,431 | | | 6 | | | 447,415 | | 11,182 | | | (133,709) | | | (101,150) | | | (2,550) | | | 210,012 | Repurchase of common stock | | (21) | | | — | | | — | | 21 | | | (743) | | | — | | | — | | | (743) | Issuance of common stock in connection with employee stock purchase plan | | 224 | | | — | | | 3,832 | | — | | | — | | | — | | | — | | | 3,832 | Issuance of common stock in connection with exercise of options | | 30 | | | — | | | 492 | | — | | | — | | | — | | | — | | | 492 | Vesting of restricted stock units | | 625 | | | — | | | | | — | | | — | | | — | | | — | | | — | Purchases of treasury stock in connection with tax withholdings on vesting of restricted stock | | — | | | — | | | — | | 257 | | | (9,471) | | | — | | | — | | | (9,471) | Stock-based compensation expense | | — | | | — | | | 21,556 | | — | | | — | | | — | | | — | | | 21,556 | Comprehensive income | | — | | | — | | | — | | — | | | — | | | 3,105 | | | 163 | | | 3,268 | Balances, December 31, 2023 | | 38,289 | | $ | 6 | | $ | 473,295 | | 11,460 | | $ | (143,923) | | $ | (98,045) | | $ | (2,387) | | $ | 228,946 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | Additional | | | | | | | | | | | | | | | Other | | | Total | | | | Common Stock | | | Paid-In | | | Treasury Stock | | | Accumulated | | | Comprehensive | | | Stockholders’ | | | | Shares | | | Amount | | | Capital | | | Shares | | | Amount | | | Deficit | | | Loss | | | Equity | | Balances, January 1, 2019 | | | 32,382 | | | $ | 5 | | | $ | 310,660 | | | | 8,295 | | | $ | (79,142 | ) | | $ | (30,452 | ) | | $ | (1,276 | ) | | $ | 199,795 | | Issuance of common stock in connection with employee stock purchase plan | | | 172 | | | | 0 | | | | 1,534 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,534 | | Issuance of common stock in connection with exercise of options | | | 230 | | | | 0 | | | | 1,289 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,289 | | Vesting of restricted stock units | | | 504 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Purchases of treasury stock in connection with tax withholdings on restricted stock grants and exercise of options | | | 0 | | | | 0 | | | | 0 | | | | 214 | | | | (2,786 | ) | | | 0 | | | | 0 | | | | (2,786 | ) | Repurchases of common stock | | | (785 | ) | | | 0 | | | | 0 | | | | 785 | | | | (9,767 | ) | | | 0 | | | | 0 | | | | (9,767 | ) | Stock-based compensation expense | | | - | | | | 0 | | | | 11,714 | | | | - | | | | 0 | | | | 0 | | | | 0 | | | | 11,714 | | Comprehensive loss | | | - | | | | 0 | | | | 0 | | | | - | | | | 0 | | | | (5,418 | ) | | | (204 | ) | | | (5,622 | ) | Balances, December 31, 2019 | | | 32,503 | | | | 5 | | | | 325,197 | | | | 9,294 | | | | (91,695 | ) | | | (35,870 | ) | | | (1,480 | ) | | | 196,157 | | Issuance of common stock, net of issuance costs of $0.1 million | | | 3,307 | | | | 1 | | | | 65,077 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 65,078 | | Issuance of common stock in connection with employee stock purchase plan | | | 183 | | | | 0 | | | | 1,670 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,670 | | Issuance of common stock in connection with exercise of options | | | 246 | | | | 0 | | | | 2,570 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 2,570 | | Vesting of restricted stock units | | | 611 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | Purchases of treasury stock in connection with tax withholdings on restricted stock grants | | | 0 | | | | 0 | | | | 0 | | | | 256 | | | | (4,520 | ) | | | 0 | | | | 0 | | | | (4,520 | ) | Stock-based compensation expense | | | - | | | | 0 | | | | 12,659 | | | | - | | | | 0 | | | | 0 | | | | 0 | | | | 12,659 | | Comprehensive income (loss) | | | - | | | | 0 | | | | 0 | | | | - | | | | 0 | | | | (40,363 | ) | | | 1,255 | | | | (39,108 | ) | Balances, December 31, 2020 | | | 36,850 | | | $ | 6 | | | $ | 407,173 | | | | 9,550 | | | $ | (96,215 | ) | | $ | (76,233 | ) | | $ | (225 | ) | | $ | 234,506 | |
SeeAccompanying Notes to Consolidated Financial Statements. See accompanying notes to consolidated financial statements.
PDF SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) | | | | | | | | | | | | Year Ended December 31, | | | 2023 | | 2022 | | 2021 | Cash flows from operating activities: | | | | | | | | | | Net income (loss) | | $ | 3,105 | | $ | (3,429) | | $ | (21,488) | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | Depreciation and amortization | | | 4,986 | | | 5,526 | | | 6,218 | Stock-based compensation expense | | | 21,484 | | | 19,649 | | | 12,931 | Amortization of acquired intangible assets | | | 3,551 | | | 3,484 | | | 3,334 | Amortization of costs capitalized to obtain revenue contracts | | | 2,142 | | | 1,550 | | | 674 | Net accretion of discounts on short-term investments | | | (1,174) | | | (187) | | | (14) | Write-down in value of property and equipment | | | — | | | — | | | 3,183 | Deferred taxes | | | (108) | | | (4) | | | 1,373 | Other | | | (198) | | | — | | | 161 | Changes in operating assets and liabilities: | | | | | | | | | | Accounts receivable | | | (2,748) | | | (2,143) | | | (5,980) | Prepaid expenses and other current assets | | | (7,329) | | | (5,787) | | | 1,136 | Operating lease right-of-use assets | | | 1,205 | | | 1,821 | | | 1,414 | Other non-current assets | | | (4,166) | | | 2,258 | | | (1,336) | Accounts payable | | | (2,145) | | | (1,423) | | | (86) | Accrued compensation and related benefits | | | (2,188) | | | 7,720 | | | 1,264 | Accrued and other liabilities | | | 110 | | | 1,671 | | | (648) | Deferred revenues | | | (358) | | | 1,822 | | | 5,028 | Billings in excess of recognized revenues | | | (282) | | | 1,852 | | | (1,337) | Operating lease liabilities | | | (1,287) | | | (2,082) | | | (1,584) | Net cash provided by operating activities | | | 14,600 | | | 32,298 | | | 4,243 | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | Proceeds from maturities and sales of short-term investments | | | 43,800 | | | 151,500 | | | 171,000 | Purchases of short-term investments | | | (59,598) | | | (58,321) | | | (168,560) | Proceeds from sale of property and equipment | | | 105 | | | — | | | — | Purchases of property and equipment | | | (11,236) | | | (8,409) | | | (3,672) | Prepayment for the purchase of property and equipment | | | (89) | | | (21) | | | (381) | Purchases of intangible assets | | | (150) | | | (150) | | | — | Payment for business acquisition, net of cash acquired | | | (1,823) | | | — | | | (3,054) | Net cash provided by (used in) investing activities | | | (28,991) | | | 84,599 | | | (4,667) | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | Proceeds from exercise of stock options | | | 492 | | | 1,686 | | | 1,930 | Proceeds from employee stock purchase plans | | | 3,832 | | | 3,011 | | | 1,035 | Payments for taxes related to net share settlement of equity awards | | | (9,471) | | | (6,533) | | | (3,967) | Repurchases of common stock | | | (743) | | | (22,471) | | | (4,523) | Net cash used in financing activities | | | (5,890) | | | (24,307) | | | (5,525) | | | | | | | | | | | Effect of exchange rate changes on cash and cash equivalents | | | (365) | | | (650) | | | (182) | Net change in cash and cash equivalents | | | (20,646) | | | 91,940 | | | (6,131) | Cash and cash equivalents at beginning of year | | | 119,624 | | | 27,684 | | | 33,815 | Cash and cash equivalents at end of year | | $ | 98,978 | | $ | 119,624 | | $ | 27,684 |
Continued on next page. | | Year Ended December 31, | | | | 2020 | | | 2019 | | Cash flows from operating activities: | | | | | | | | | Net loss | | $ | (40,363 | ) | | $ | (5,418 | ) | Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | Depreciation and amortization | | | 6,725 | | | | 6,029 | | Stock-based compensation expense | | | 12,463 | | | | 11,423 | | Amortization of acquired intangible assets | | | 1,446 | | | | 1,183 | | Amortization of costs capitalized to obtain revenue contracts | | | 549 | | | | 448 | | Adjustment to contingent consideration related to acquisition | | | 0 | | | | 36 | | Loss on disposal and write-down in carrying value of property and equipment | | | 500 | | | | 130 | | Accretion of discount on short-term investments | | | (25 | ) | | | 0 | | Deferred taxes | | | 21,007 | | | | (4,532 | ) | Changes in operating assets and liabilities: | | | | | | | | | Accounts receivable, net of reserves | | | 8,101 | | | | 10,919 | | Prepaid expenses and other current assets | | | (433 | ) | | | (810 | ) | Operating lease right-of-use assets | | | 1,193 | | | | 1,394 | | Other non-current assets | | | 2,069 | | | | 758 | | Accounts payable | | | (918 | ) | | | 807 | | Accrued compensation and related benefits | | | 1,926 | | | | 261 | | Accrued and other liabilities | | | 928 | | | | (597 | ) | Deferred revenues | | | 7,755 | | | | 3,410 | | Billings in excess of recognized revenues | | | 220 | | | | 482 | | Operating lease liabilities | | | (1,360 | ) | | | (1,333 | ) | Net cash provided by operating activities | | | 21,783 | | | | 24,590 | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | Purchases of short-term investments | | | (131,454 | ) | | | 0 | | Proceeds from maturities of short-term investments | | | 16,500 | | | | 0 | | Purchases of property and equipment | | | (6,005 | ) | | | (10,552 | ) | Prepayment for the purchase of property and equipment | | | (963 | ) | | | 0 | | Payment for business acquisition, net of cash acquired | | | (28,580 | ) | | | (2,660 | ) | Net cash used in investing activities | | | (150,502 | ) | | | (13,212 | ) | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | Proceeds from issuance of common stock, net of issuance costs paid | | | 65,078 | | | | 0 | | Proceeds from exercise of stock options | | | 2,570 | | | | 1,161 | | Proceeds from employee stock purchase plan | | | 1,670 | | | | 1,534 | | Payments for taxes related to net share settlement of equity awards | | | (4,520 | ) | | | (2,685 | ) | Repurchases of common stock | | | 0 | | | | (9,639 | ) | Payment of contingent consideration related to acquisition | | | 0 | | | | (206 | ) | Net cash provided by (used in) financing activities | | | 64,798 | | | | (9,835 | ) | | | | | | | | | | Effect of exchange rate changes on cash and cash equivalents | | | 131 | | | | (27 | ) | Net change in cash, cash equivalents, and restricted cash | | | (63,790 | ) | | | 1,516 | | Cash and cash equivalents, beginning of year | | | 97,605 | | | | 96,089 | | Cash, cash equivalents, and restricted cash, end of year | | $ | 33,815 | | | $ | 97,605 | |
60 See accompanying notes to consolidated financial statements.
PDF SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS —– CONTINUED (in thousands) | | | | | | | | | | | | Year Ended December 31, | | | 2023 | | 2022 | | 2021 | Supplemental disclosure of cash flow information: | | | | | | | | | | Cash paid during the year for taxes | | $ | 3,783 | | $ | 2,850 | | $ | 1,873 | Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 1,648 | | $ | 1,744 | | $ | 1,947 | | | | | | | | | | | Supplemental disclosure of noncash information: | | | | | | | | | | Property and equipment received and accrued in accounts payable and accrued and other liabilities | | $ | 1,599 | | $ | 3,201 | | $ | 1,359 | Advances for purchase of fixed assets transferred from prepaid assets to property and equipment | | $ | 66 | | $ | 336 | | $ | 963 | Operating lease liabilities arising from obtaining right-of-use assets | | $ | 131 | | $ | 2,502 | | $ | 161 | Property and equipment transferred to sales-type leases | | $ | 8,076 | | $ | — | | $ | — |
| | Year Ended December 31, | | | | 2020 | | | 2019 | | Reconciliation of cash, cash equivalents and restricted cash, end of year | | | | | | | | | Cash and cash equivalents | | $ | 30,315 | | | $ | 97,605 | | Restricted cash included in prepaid expenses and other current assets | | | 3,500 | | | | 0 | | Total cash, cash equivalents and restricted cash, end of year | | $ | 33,815 | | | $ | 97,605 | | | | | | | | | | | Supplemental disclosure of cash flow information: | | | | | | | | | Cash paid during the period for taxes | | $ | 2,707 | | | $ | 2,693 | | Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 2,022 | | | $ | 1,775 | | | | | | | | | | | Supplemental disclosure of noncash information: | | | | | | | | | Stock-based compensation capitalized as software development costs | | $ | 190 | | | $ | 309 | | Property and equipment received and accrued in accounts payable and accrued and other liabilities | | $ | 133 | | | $ | 1,107 | | Advances for purchase of fixed assets transferred from prepaid assets to property and equipment | | $ | 0 | | | $ | 1,416 | | Operating lease liabilities arising from obtaining right-of-use assets | | $ | 286 | | | $ | 333 | | Common shares repurchased from a cashless exercise of stock options | | $ | 0 | | | $ | 128 | |
See Accompanying Notes to Consolidated Financial Statements. See accompanying notes to consolidated financial statements.
PDF SOLUTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business PDF Solutions, Inc. (the “Company” or “PDF”), provides products and services designed to empower engineers and data scientistsorganizations across the semiconductor and electronics ecosystem to connect, collect, manage, and analyze data about design, equipment, manufacturing, and test to improve the yield and quality of their products and operational efficiency. The Company’s products, services, and solutions include proprietary software, physical intellectual property (or IP)(“IP”) for integrated circuit (or IC)(“IC”) designs, electrical measurement hardware tools, proven methodologies, and professional services. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all significant intercompany balances and transactions. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include revenue recognition, the estimated useful lives of property and equipment and intangible assets, assumptions made in analysis of allowance for doubtful accounts,credit losses, fair values of assets acquired and liabilities assumed in business combinations, impairment of goodwill and long-lived assets, valuation for deferred tax assets, and accounting for lease obligations, stock-based compensation expense, and income tax uncertainties and contingencies. Actual results could differ from those estimates and may result in material effects on the Company’s operating results and financial position. The global COVID-19 pandemic has impacted the operations and purchasing decisions of companies worldwide. It also has created and may continue to create significant uncertainty in the global economy. The Company has undertaken measures to protect its employees, partners, customers, and vendors. In addition, the Company’s personnel worldwide are subject to various travel restrictions, which limit the ability of the Company to provide services to customers and affiliates. This impacts the Company’s normal operations. The Company believes the lack of an ability to meet face-to-face in most of 2020may have made it harder for us to sell complex or new technologies to new customers during 2020. If the Company can again begin to meet with customers face-to-face, the Company may improve traction with such new customers. To date, the Company has been able to provide uninterrupted access to its products and services due to its globally distributed workforce, many of whom are working remotely, and its pre-existing infrastructure that supports secure access to the Company’s internal systems. If, however, the COVID-19 pandemic has a substantial impact on the productivity of the Company’s employees or its partners’ or customers’ decision to use the Company’s products and services, the results of the Company’s operations and overall financial performance may be adversely impacted. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial statements.
Concentration of Credit Risk Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short -termshort-term investments, and accounts receivable. As of December 31, 2023, and periodically throughout the year, the Company had cash balances in various operating accounts in excess of federally insured limits. The Company maintains its cash and cash equivalents and short-term investments with what it considers high credit quality financial institutions. The Company primarily sells its products and services to companies in Asia, Europe, and North America within the semiconductor industry. As of December 31, 2020, 2023, two customers accounted for 27%50% of the Company’s gross accounts receivable and one customer accounted for 23%35% of the Company’s total revenues for 2020.2023. As of December 31, 2019, 2022, three customers accounted for 53% of the Company’s gross accounts receivable and one customertwo customers accounted for 31%41% of the Company’s revenues for 2019.2022. Two customers accounted for 27% of the Company’s revenues for 2021. See Note 1411 for further details. The Company does not require collateral or other security to support accounts receivable. To reduce credit risk, management performs ongoing credit evaluations of its customers’ financial condition. The Company maintains allowances for potential credit losses. The allowance for doubtful accounts,credit losses, which was based on management’s best estimates, could be adjusted in the near term from current estimates depending on actual experience. Such adjustments could be material to the consolidated financial statements.
Supplier Concentration Some of the Company’s vendors provide highly specialized, differentiated products and services related to the Company’s eProbe system and some licensors provide key enabling software for the Company’s products and services. In the event any of these suppliers delay or discontinue providing such products and services to the Company, it may be difficult for the Company to replace such suppliers, software, or parts in a timely manner or at all, which could delay or make impossible the Company’s ability to deliver or adequately support its software systems or to complete and deliver its eProbe systems to its customers, and could negatively impact the Company’s future financial results of operations. Cash and Cash Equivalents, and Short-term Investments and Restricted Cash The Company considers all highly liquid investments with an original maturityeffective maturities of 90 days or less or investments with a remaining maturityon the date of90 days or less at the purchase to be cash equivalents and investments with originaleffective maturities greater than 90 days but less than one year to be short-term investments. The Company classifies its securities with readily determinable market values as available-for-sale.“available-for-sale”. Short-term investments include available-for-sale securities and are carried at estimated fair value, with the unrealized gains and unrealized non-credit-related losses, deemed temporary in nature, net of tax, reported as a component of accumulated other comprehensive lossincome (loss) in stockholders’ equity. Unrealized credit-related losses are recorded to interest and other expense (income), net in the Consolidated Statements of Comprehensive Income (Loss) with a corresponding allowance for credit-related losses in the Consolidated Balance Sheets. Realized gains and losses and declines in value determined to be other than temporary are based on the specific identification method and are included as a component of interest and other expense (income), net in the Consolidated Statements of Comprehensive Loss. Income (Loss). The Company periodically reviews short-term investments for impairment. InFor investments in unrealized loss positions, the event aCompany assesses whether any portion of the decline in fair value below the amortized cost basis is determineddue to be other-than-temporary, an impairment loss is recognized. When determiningcredit-related factors if a decline in value is other-than-temporary, the Company takes into consideration the current market conditions, the duration and severity of and the reason for the decline, and the likelihoodneither intends to sell nor anticipates that it would needis more likely than not that it will be required to sell prior to recovery of the amortized cost basis. The Company considers factors such as the extent to which the market value has been less than the amortized cost basis, any noted failure of the issuer to make scheduled interest or principal payments, changes to the rating of the security prior toby a recoveryrating agency and other relevant credit-related factors in determining whether or not a credit loss exists. There was no allowance for credit-related losses on any of par value. the Company’s investments recognized in the years ended December 31, 2023, 2022 and 2021. As of December 31, 2020, 2023, and 2022, short-term investments consisted solely of U.S. Treasury bills.Government securities. The cost of these securities approximated fair value and there was 0no material gross realized or unrealized gains or losses as of December 31, 2020. There were also 0 impairments in the investments’ value in the year ended December 31, 2020. As of December 31, 2019, the Company held 0 short-term investments.2023 and 2022. Refer to Note 1512, “Fair Value Measurements” for further discussion on the Company’s investments. RestrictedThe Company recorded interest income from its cash, cash equivalents, and short-term investments of $3.5$5.5 million, included$1.5 million and $0.1 million in the “Prepaid expenses and other current assets” in the Company’s Consolidated Balance Sheet as of years ended December 31 2020 pertains to the amount, subject to adjustments, specifically designated to pay for the holdback amount related to the Company’s acquisition of Cimetrix Incorporated (“Cimetrix”)2023, 2022 and is expected to be settled in 2021. Refer to Note 4, “Business Combination” for further discussion.2021, respectively.
Accounts Receivable Accounts receivable include amounts that are unbilled at the end of the period that are expected to be billed and collected within 12-montha 12-month period. Unbilled accounts receivable isare determined on an individual contract basis. Unbilled accounts receivable, included in accounts receivable, totaled $7.2$16.4 million and $7.4$13.5 million as of December 31, 2020 2023 and 2019,2022, respectively. Unbilled accounts receivable that are not expected to be billed and collected during the succeeding 12-month12-month period are recorded in other non-current assets and totaled $2.0$1.1 million and $4.1$0.8 million as of December 31, 2020 2023 and 2019,2022, respectively. The Company performs ongoing credit evaluations of its customers’ financial condition. An allowance for doubtful accountscredit losses is maintained for probable credit losses based upon the Company’s assessment of the expected collectabilitycollectibility of the accounts receivable. The allowance for doubtful accountscredit losses is reviewed on a quarterly basis to assess the adequacy of the allowance. Accounts receivable reserves63
The changes in allowance for credit losses are summarized below (in thousands): | | Balance at Beginning of Period | | | Charged to Expense (1) | | | Charged Against Revenue (1) | | | Deductions/ Write-offs of Accounts | | | Balance at End of Period | | 2020 | | $ | 213 | | | $ | 0 | | | $ | 800 | | | $ | (50 | ) | | $ | 963 | | 2019 | | $ | 332 | | | $ | 0 | | | $ | 0 | | | $ | (119 | ) | | $ | 213 | |
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| | | | | | | | | | | | | | | | | | | | Deductions/ | | | | | Balance at | | | | | Write-offs | | Balance at | | | Beginning | | Charged to | | of Accounts | | End of | | | of Period | | Expense (1) | | Receivable | | Period | 2023 | | $ | 890 | | $ | 20 | | $ | (20) | | $ | 890 | 2022 | | $ | 890 | | $ | 11 | | $ | (11) | | $ | 890 | 2021 | | $ | 963 | | $ | — | | $ | (73) | | $ | 890 |
| (1) | (1)
| Additions to the accounts receivable reserve for doubtful accountscredit losses are charged to bad debt expense. Additions to the receivable reserve for billing adjustments are charged against revenue. |
Property and Equipment Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives (in years) of the related asset as follows: | | | Computer equipment | | 3 | | Software | | 3 | | Furniture, fixtures, and equipment | | 3 - 10 | 5-10 | Laboratory and test equipment | | 3 - 10 | 3-10 | Leasehold improvements | | Shorter of estimated useful life or term of lease | |
Intangible Assets Intangible assets consist of acquired technology, certain contract rights, customer relationships, patents, trademarks and trade names, and in-process research and development (IP R&D).names. These intangible assets may be acquired through business combinations or direct purchases. Intangible assets are amortized on a straight-line basis over their estimated useful lives which range from one to ten years, except for IP R&D projects. Upon completion of the IP R&D asset, it will be amortized over the estimated useful life or will be written off upon abandonment. years. The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets, including property and equipment and intangible assets, may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of long-lived assets. Recoverability of an asset group is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset group is expected to generate. If it is determined that an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds its fair value. Goodwill The Company records goodwill when the purchase consideration of an acquisition exceeds the fair value of the net tangible and identified intangible assets as of the date of acquisition. The Company has one operating segment and one operating unit. The Company performs a qualitative analysis when testing a reporting unit’s goodwill for impairment. The Company performs an annual impairment assessment of goodwill during the fourth quarter of each calendar year or more frequently, if required to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If the carrying amount exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill. Leases The Company has operating leases for administrative and sales offices, research and development laboratory and clean room. The Company recognizes long-term operating lease rights and commitments as operating lease right-of-use (“ROU”) assets, (ROU), operating lease liabilities and operating lease liabilities, non-current, respectively, in the Consolidated Balance Sheets. The Company also elected the transition package of three practical expedients which allow companies not to reassess (i) whether agreements contain leases, (ii) the classification of leases, and (iii) the capitalization of initial direct costs. Further, the Company elected to not separate lease and non-lease components for all of its leases. The Company determines if an arrangement is, or contains, a lease at inception. Operating lease right-of-useROU assets, and operating lease liabilities are initially recorded based on the present value of lease payments over the lease term. Lease terms include the minimum unconditional term of the lease, and may include options to extend or terminate the lease when it is reasonably certain at the commencement date that such options will be exercised. The decision to include these options involves consideration of ourthe Company’s overall future business plans and other relevant business economic factors that may affect ourits business. Since the determination of the lease term requires an application of judgment, lease terms that differ in reality from ourthe Company’s initial judgment may potentially have a material impact on the Company’s Consolidated Balance Sheets. In addition, the Company’s leases do not provide an implicit rate. In determining the present value of the Company’s expected lease payments, the discount rate is calculated using the Company’s incremental borrowing rate determined based on the information available, which requires additional judgment. Software Development Costs Internally developed software is software developed to meet ourthe Company’s internal needs to provide certain services to the customers. The Company’s capitalized software development costs consist of internal compensation related costs and external direct costs incurred during the application development stage and are amortized over their useful lives, generally five to six years. The costs to develop software that is marketed externally have notconsisting of external direct costs and internal compensation related costs are capitalized once technological feasibility of the software product has been capitalizedestablished. Costs incurred prior to establishing technological feasibility are expensed as we believe our currentincurred. Technological feasibility is established when the Company has completed all planning, designing, coding, and testing activities that are necessary to establish that the software development processproduct can be produced to meet its design specifications. Capitalization of such costs ceases when the software product is essentially completed concurrent with the establishment of technological feasibility. As such, all relatedgenerally available to customers. These software development costs are expensed as incurred and included in research and development expense in our Consolidated Statementsamortized using the greater of Comprehensive Loss.the straight-line method or the usage method over its estimated useful life.
Cost of Revenues Costs of revenues consist primarily of costs incurred to provide and support ourthe Company’s services, costs recognized in connection with licensing ourits software, IT and facilities-related costs and amortization of acquired technology. ServicesService costs include material costs, hardware costs (including cost of leased assets under sales-type leases), personnel-related costs (including compensation, employee benefits, bonus and stock-based compensation and related benefits,expense), subcontractor costs, overhead costs, travel, and allocated facilities-related costs. Software license costs consist of costs associated with cloud-delivery related expenses and licensing third-partythird-party software used by usthe Company in providing services to the Company’sits customers in solution engagements or sold in conjunction with the Company’s software products.
Research and DevelopmentExpenses Research and development expenses consist primarily of personnel-related costs (including compensation, employee benefits, bonus and stock-based compensation expense), outside development services, travel, third-party cloud-services related costs, IT and facilities cost allocations to support product development activities, including compensation and benefits, outside development services, travel, facilities cost allocations, and stock-based compensation charges.activities. Research and development expenses are charged to operations as incurred.
Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of personnel-related costs (including compensation, employee benefits, bonus, commission and benefitsstock-based compensation expense for sales, marketing and general and administrative personnel,personnel), legal, tax and accounting services, marketing communications and trade conference-related expenses, third-party cloud-services related costs, travel, IT and facilities cost allocations, and stock-based compensation charges.allocations. Stock-Based Compensation
The Company accounts for stock-based compensation using the fair value method, which requires the Company to measure stock-based compensation based on the grant-date fair value of the awards and recognize the compensation expense over the requisite service period. As stock-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The fair value of the Company’s restricted stock units (“RSUs”) is equal to the market value of the Company’s common stock on the date of the grant. These awards are subject to time-based vesting which generally occurs over a period of four years years. . The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life and interest rates. The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options. The expected life is based on historical experience and on the terms and conditions of the stock options granted. The interest rate assumption is based upon observed Treasury yield curve rates appropriate for the expected life of the Company’s stock options. Income Taxes The Company’s provision for income tax comprises its current tax liability and change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effect of future changes in tax laws or rates are not anticipated. Valuation allowances are provided to reduce deferred tax assets to an amount that in management’s judgment is more likely than not to be recoverable against future taxable income. No U.S. taxes are provided on earnings of non-U.S. subsidiaries, to the extent such earnings are deemed to be permanently invested. The Company'sCompany’s income tax calculations are based on application of applicable U.S. federal and state or foreign tax laws. The Company’s tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-more likely than not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the Consolidated Statements of Comprehensive Loss.Income (Loss). Net Income (Loss) Per Share Basic net income (loss) per share is computed by dividing net income (loss) by weighted average number of common shares outstanding for the period (excluding outstanding stock options and shares subject to repurchase). Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding for the period plus the potential effect of dilutive securities which are convertible into common shares (using the treasury stock method), except in cases in which the effect would be anti-dilutive. Dilutive potential common shares consist of incremental common shares issuable upon exercise of stock options, upon vesting of RSUs, contingently issuable shares for all periods and assumed issuance of shares under the Company’s employee stock purchase plan. No dilutive potential common shares are included in the computation of any diluted per share amount when a loss from continuing operations was reported by the Company.
Foreign Currency Translation The functional currency of the Company’s foreign subsidiaries is the local currency for the respective subsidiary. The assets and liabilities are translated at the period-end exchange rate, and statements of comprehensive lossincome (loss) are translated at the average exchange rate during the year. Gains and losses resulting from foreign currency translations are included as a component of other comprehensive loss.income (loss). Gains and losses resulting from foreign currency transactions are included in the Consolidated Statements of Comprehensive Loss.Income (Loss). Derivative Financial Instruments The Company operates internationally and is exposed to potentially adverse movements in foreign currency exchange rates. From time to time, the Company enters into foreign currency forward contracts to reduce the exposure to foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. The Company does not use foreign currency contracts for speculative or trading purposes. The Company records these forward contracts at fair value. The counterparty to these foreign currency forward contracts is a financial institution that the Company believes is creditworthy, and therefore, we believe the credit risk of counterparty non-performance is not significant. These foreign currency forward contracts are not designated for hedge accounting treatment. Therefore, the change in fair value of these derivatives is recorded into earnings as a component of interest and other income (expense), net and offsets the change in fair value of the foreign currency denominated monetary assets and liabilities, which are also recorded in interest and other income (expense), net. The duration of these forward contracts is usually three months.
Business Combinations The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values at the date of the business combination. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, estimated replacement costs and future expected cash flows from acquired customers, acquired technology, acquired patents, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities affects the Company’s amortization expense, as acquired finite-lived intangible assets are amortized over thetheir useful life, whereas any indefinite lived intangible assets, including IP R&Din-process research and development, and goodwill, are not amortized. amortized but tested annually for impairment. During the measurement period, which is not to exceed one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Litigation 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 Financial Accounting Standards Board (FASB)(“FASB”) requirements. See Note 8, Commitments6, “Commitments and Contingencies.Contingencies”. Recently Adopted Accounting Standards
Intangibles – Goodwill and Other
Adopted In January 2017, June 2016, the FASB issued Accounting Standards Update (ASU) (“ASU”) No.2017-04, Intangibles – Goodwill and Other (Topic 350). This standard eliminates step 2 from the annual goodwill impairment test. This update was effective for the Company beginning in the first quarter of 2020. The Company adopted this standard on January 1, 2020, and it did not have a material impact on its consolidated financial statements and footnote disclosures. Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
In August 2018, the FASB issued ASU No.2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance clarifies the accounting for implementation costs incurred to develop or obtain internal-use software in cloud computing arrangements. Further, the standard also requires entities to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. This standard was effective for the Company beginning in the first quarter of 2020. ASU No.2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU No.2018-15 on January 1, 2020 on a prospective basis. There was no material impact on the Company’s consolidated financial statements as a result of adoption of ASU No.2018-15. As of December 31, 2020, the implementation costs capitalized by the Company pertaining to a cloud computing arrangement, which related to sales order and customer relation management, amounted to $0.4 million. The capitalized implementation costs were included in other noncurrent assets on the Consolidated Balance Sheet and within the operating activities section of the Company’s Consolidated Statement of Cash Flows for the year ended December 31, 2020. When the module or component of the hosting arrangement is ready for its intended use, the Company expects to amortize the capitalized implementation costs over the respective noncancellable period of the arrangement plus the period covered by an option to extend the arrangement that is reasonably certain of being exercised. The amortization expense related to these assets for the year ended December 31, 2020 was immaterial.
Management has reviewed other recently issued accounting pronouncements and has determined there are not any that would have a material impact on the consolidated financial statements.
Accounting Standards Not Yet Effective
In June 2016, the FASB issued ASU No.2016-13, 2016-13, Financial Instruments – Credit Losses (Topic 326)326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13(“ASU No. 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. ASU No.2016-13 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model, which will result in earlier recognition of credit losses. Subsequent to the issuance of ASU No.2016-13, 2016-13, the FASB issued ASU No.2018-19, 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ASU No.2019-04, 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instrument, ASU No.2019-05, 2019-05, Financial Instruments – Credit Losses (Topic 326)326) Targeted Transition Relief, ASU No.2016-13, 2016-13, ASU No.2019-10 2019-10 Financial Instruments-Credit Losses (Topic 326)326), Derivatives and Hedging (Topic 815)815), and Leases (Topic 842)842), and ASU No.2019-11 2019-11 Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The subsequent ASUs do not change the core principle of the guidance in ASU No.2016-13. 2016-13. Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU No.2016-13. 2016-13.
The Company adopted this standard on credit losses for public filers that are considered small reporting companies (“SRC”) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which will be fiscal January 1, 2023, for the Company if it continues to be classified as a SRC. In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The subsequent amendments will have the same effective date and transition requirements as ASU No.2016-13. Early adoption is permitted. Topic 326 requires using a modified retrospective approach, by recordingwhich requires a cumulative-effect adjustment to retained earningsaccumulated deficit as of the beginning of the period of adoption. Whileadoption with prior periods not restated. The adoption of ASU No. 2016-13 did not have a material impact on the Company’s consolidated financial statements. Recently Issued Accounting Pronouncements In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact of Topic 326,the new standard on the consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2024. Entities are permitted to early adopt the standard for “annual financial statements that have not yet been issued or made available for issuance.” Adoption is either prospectively or retrospectively, the Company does not expect the adoption ofwill adopt this ASU toon a prospective basis. The Company is currently evaluating the impact of the new standard on the consolidated financial statements and related disclosures. Management has reviewed other recently issued accounting pronouncements issued or proposed by the FASB and does not believe any of these accounting pronouncements has had or will have a material impact on itsthe consolidated financial statements or the related disclosure.statements. In December 2019, the FASB issued ASU No.2019-12, Income Taxes (Topic 740) related to simplifying the accounting for income taxes. The guidance is effective for the Company beginning in the first quarter of 2021 on a prospective basis. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements or the related disclosures.
In January 2020, the FASB issued ASU No.2020-01-Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU clarifies the interaction between accounting standards related to equity securities (Accounting Standard Codification or “ASC” 321), equity method investments (ASC 323), and certain derivatives (ASC 815). The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements or the related disclosures.
In August 2020, the FASB issued ASU No.2020-16, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 8150-20): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. Additionally, the ASU will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. The ASU will be effective for annual reporting periods beginning after December 15, 2023 for SRCs and interim periods within those annual periods. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements or the related disclosures.
2. REVENUE The Company derives revenue from two sources: Analytics revenue and Integrated Yield Ramp revenue. The Company recognizes revenue in accordance with FASB ASCAccounting Standard 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 |
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| Identification of the performance obligations in the contract |
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| Determination of the transaction price |
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| Allocation of the transaction price to the performance obligations in the contract |
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| Recognition of revenue when, or as, performance obligations are satisfied |
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Contracts with multiple performance obligations The Company enters into contracts that can include various combinations of licenses, products and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative basis using the standalone selling price.price (“SSP”). Analytics Revenue Analytics revenue is derived from the following primary offerings: licenses and services for standalone software (which is primarily Exensio® and Cimetrix® products), SaaS Data Connectivity(which is primarily Exensio products), and Equipment Control Software, DFI™ systems and CV®CV® systems (including Characterization services) that do not include performance incentives based on customers’ yield achievement, and services related to the foregoing.achievement. Revenue from standalone software is recognized depending on whether the license is perpetual or time-based. Perpetual ( one-time(one-time charge) license software is recognized at the time of the inception of the arrangement when control transfers to the customers, if the software license is considered as a separate performance obligation from the services offered by the Company. Revenue from post-contract support is recognized over the contract term on a straight-line basis, because we are providing (i) support and (ii) unspecified software updates on a when-and-if available basis over the contract term. Revenue from time-based-licensed software is allocated to each performance obligation and is recognized either at a point in time or over time as follows. The license component is recognized at the time when control transfers to customers, with the post-contract support component recognized ratably over the committed term of the contract. For contracts with any combination of licenses, support, and other services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using standalone selling price (or SSP)the SSP attributed to each performance obligation. Revenue from Exensio SaaS arrangements, which allow for the use of a cloud-based software product or service over a contractually determined period of time without the customer having to take possession of software, is accounted for as a subscription and is recognized as revenue ratably, on a straight-line basis, over the subscription period beginning on the date the service is first made available to customers. For contracts with any combination of SaaS and related services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation. Revenue from DFI™DFI systems and CV®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 thesethose contracts with multiple performance obligations, the Company allocateallocates the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation. Where there are not discrete performance obligations, historically, revenue is primarily recognized as services are performed using a percentage of completion method based on costs or labor-hours inputs, whichever is the most appropriate measure of the progress towards completion of the contract. The estimation of percentage of completion method is complex and subject to many variables that require significant judgement. Please refer to “Significant Judgments” section of this Note for further discussion. 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 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 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 Consolidated Balance Sheets. 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 and(which consists primarily of Gainshare royalties,royalties) typically based on customer’s wafer shipments, pertaining to these fixed-price contracts, which royalties are variable. Revenue under these project–based contracts, which are delivered over a specific period of time, typically for a fixed fee component paid on a set schedule, is recognized as services are performed using a percentage of completion method based on costs or labor-inputs, whichever is the most appropriate measure of the progress towards completion of the contract. Where there are distinct performance obligations, the Company allocates revenue to all deliverables based on their SSPs and allocates the transaction price of the contract to each performance obligation on a relative basis using SSP. Similar to the services provided in connection with DFI™DFI systems and CV®CV systems that are contributing to Analytics revenue, due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex and subject to many variables that require significant judgement. Please refer to “Significant Judgments” section of this Note for further discussion. The Gainshare royalty contained in IYRIntegrated Yield Ramp contracts is a variable fee related to continued usage of the Company’s intellectual propertyIP after the fixed-fee service period ends, based on a customer’s yield achievement. Revenue derived from Gainshare is contingent upon the Company’s customers reaching certain defined production yield levels. Gainshare royalty periods are generally subsequent to the delivery of all contractual services and performance obligations. The Company records Gainshare as a usage-based royalty derived from customers’ usage of intellectual propertyIP and records it in the same period in which the usage occurs. Disaggregation of Revenue The Company disaggregates revenue from contracts with customers into the timing of the transfer of goods and services and the geographical regions. The Company determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Company’s performance obligations are satisfied either over time or at a point-in-time. The following table represents a disaggregation of revenue by timing of revenue: | | Year Ended December 31, | | | | | 2020 | | | 2019 | | | | | | | | | | | | | | | Year Ended December 31, | | | | | 2023 | | 2022 | | 2021 | | Over time | | 63 | % | | 66 | % | | 71 | % | 69 | % | 65 | % | Point-in-time | | | 37 | % | | | 34 | % | | 29 | % | 31 | % | 35 | % | Total | | | 100 | % | | | 100 | % | | 100 | % | 100 | % | 100 | % |
International revenues accounted for approximately 58%44%, 50% and 55% of total revenues for the yearyears ended December 31, 2020 2023, 2022 and 2019.2021, respectively. See Note 14, Customer11, “Customer and Geographic Information.Information”. Significant Judgments Judgments and estimates are required under ASC 606. Due to the complexity of certain contracts, the actual revenue recognition treatment required under ASC 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances. For revenue under project-based contracts for fixed-price implementation services, revenue is recognized as services are performed using a percentage-of-completion method based on costs or labor-hours input method, whichever is the most appropriate measure of the progress towards completion of the contract. Due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex, subject to many variables and requires significant judgment. Key factors reviewed by the Company to estimate costs to complete each contract are future labor and product costs and expected productivity efficiencies. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in revenue on a cumulative catch-up basis in the period in which the circumstances that gave rise to the revision become known. The Company’s contracts with customers often include promises to transfer products, licenses software and provide services, including professional services, technical support services, and rights to unspecified updates to a customer. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. The Company rarely licenses software on a standalone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where SSP is not directly observable because the Company does not license the software or sell the service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. The Company is required to record Gainshare royalty revenue in the same period in which the usage occurs. Because the Company generally does not receive the acknowledgment reports from its customers during a given quarter within the time frame necessary to adequately review the reports and include the actual amounts in quarterly results for such quarter, the Company accrues the related revenue based on estimates of customers underlying sales achievement. The Company’s estimation process can be based on historical data, trends, seasonality, changes in the contract rate, knowledge of the changes in the industry and changes in the customer’s manufacturing environment learned through discussions with customers and sales personnel. As a result of accruing revenue for the quarter based on such estimates, adjustments will be required in the following quarter to true-up revenue to the actual amounts reported. Contract Balances The Company performs its obligations under a contract with a customer by licensing software or providing services in exchange for consideration from the customer. The timing of the Company’s performance often differs from the timing of the customer’s payment, which results in the recognition of a receivable, a contract asset or a contract liability. See Note 1 for further information about accounts receivable. The Company classifies the right to consideration in exchange for software or services transferred to a customer as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional, as compared to a contract asset, which is a right to consideration that is conditional upon factors other than the passage of time. The majority of the Company’s contract assets represent unbilled amounts related to fixed-price service contracts when the revenue recognized exceeds the amount billed to the customer. The contract assets are generally classified as current and are recorded on a net basis with deferred revenue (i.e. contract liabilities) at the contract level. At As of December 31, 2020 2023 and 2019,2022, contract assets of $3.7$6.8 million and $3.6$3.3 million, respectively, are included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets. As of December 31, 2023 and 2022, contract assets of $0.9 million and nil, respectively, are included in other non-current assets in the accompanying Consolidated Balance Sheets. The Company did not record any asset impairment charges related to contract assets during fiscal year 2020years 2023, 2022 and 2019. 2021. 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-monthtwelve-month period are recorded as current deferred revenues and the remaining portion is recorded asin other non-current deferred revenues. Theliabilities in the accompanying Consolidated Balance Sheets. As of December 31, 2023 and 2022, the non-current portion of deferred revenuerevenues included in other non-current liabilities as of December 31, 2020 and 2019was $1.2$1.8 million and $2.3$1.9 million, respectively. Revenue recognized for the years ended December 31, 2020 2023, 2022 and 2019,2021, that was included in the deferred revenues and billings in excess of recognized revenues balances at the beginning of each reporting period was $10.7$24.8 million, $24.9 million and $8.8$16.9 million, respectively. As of December 31, 2020, 2023, 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 $108.1$229.8 million. Given the applicable contract terms with customers, the majority of this amount is expected to be recognized as revenue over the next twothree years years,, with the remainder in the following three years years.. This amount does not include insignificantsignificant contracts to which the customer is not committed, nor significant contracts for which we recognize revenue equal to the amount we have the right to invoice for services performed, or future sales-based or usage-based royalty payments in exchange for a license of intellectual property.IP, and future payments for performance obligations from on-demand arrangements. This amount is subject to change due to future revaluations of variable consideration, terminations, other contract modifications, or currency adjustments. The estimated timing of the recognition of remaining unsatisfied performance obligations is subject to change and is affected by changes to the scope, change in timing of delivery of products and services, or contract modifications. The adjustment to revenue recognized in the years ended December 31, 2020 2023, 2022 and 20192021 from performance obligations satisfied (or partially satisfied) in previous periods was an increase of $0.1$3.7 million, and $3.2 increase of $0.4 million and a decrease $0.4 million, respectively. These amounts primarily represent changes in estimated percentage-of-completion based contracts and changes in actual versus estimated Gainshare royalty. Costs to obtain or fulfill a contract The Company capitalizes the incremental costs to obtain or fulfill a contract with a customer, including direct sales commissions and related fees, when it expects to recover those costs. Amortization expense related to these capitalized costs is recognized over the period associated with the revenue from which the cost was incurred. Total capitalized direct sales commission costs included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets as of December 31, 2020 2023 and 20192022 was $0.8$2.0 million and $0.4$1.7 million, respectively. Total capitalized direct sales commission costs included in other non-current assets in the accompanying Consolidated Balance Sheets as of December 31, 2020 2023 and 20192022 was $0.9$2.6 million and $0.4$2.1 million, respectively. Amortization of these assets for each of the years ended December 31, 2020 2023, 2022 and 20192021 was $0.5$2.1 million, $1.5 million and $0.4$0.7 million, respectively. respectively. There was no impairment loss in relation to the costs capitalized for the periods presented. Certain eligible initial project costs are capitalized when the costs relate directly to the contract, the costs generate or enhance resources of the Company that will be used in satisfying the performance obligation in the future, and the costs are expected to be recovered. These costs primarily consist of transition and set-up costs related to the installation of systems and processes and other deferred fulfillment costs eligible for capitalization. Capitalized costs are amortized consistent with the transfer to the customer of the services to which the asset relates and recorded as a component of cost of revenues. The Company also incurs certain direct costs to provide services in relation to the specific anticipated contracts. The Company recognizes such costs as a component of cost of revenues, the timing of which is dependent upon identification of a contract arrangement. At the end of the reporting period, the Company evaluates its deferred costs for their probable recoverability. Deferred costs balance included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets was immaterial as of December 31, 2020 and was $0.3 million as of December 31, 2019. Deferred costs balance included in other non-current assets in the accompanying Consolidated Balance Sheets was immaterial as of December 31, 2020 and was $0.2 million as of December 31, 2019. The Company recognizes impairment of deferred costs when it is determined that the costs no longer have future benefits and are no longer recoverable. There was no impairment loss in relation to the costs capitalized for the periods presented.
Practical Expedients The Company does not adjust transaction price for the effects of a significant financing component when the period between the transfers of the promised good or service to the customer and payment for that good or service by the customer is expected to be one year or less. The Company assessed each of its revenue generating arrangements in order to determine whether a significant financing component exists, and determined its contracts did not include a significant financing component for the years ended December 31, 2020 2023, 2022 and 2019.2021. 3. STRATEGIC PARTNERSHIP AGREEMENT WITH ADVANTEST AND RELATED PARTY TRANSACTIONS
On July 29, 2020, the Company entered into a long-term strategic partnership with Advantest Corporation through its wholly-owned subsidiary, Advantest America, Inc. (collectively referred to herein as “Advantest”) that includes:
i. Securities Purchase Agreement and Stockholder Agreement
Pursuant to the Securities Purchase Agreement (“SPA”), the Company issued an aggregate of 3,306,924 shares of its common stock, par value $0.00015 per share (the “SPA Shares”), at a purchase price equal to $19.7085 per share to Advantest for aggregate gross proceeds of $65.2 million.
In connection with the SPA, the Company entered into a Stockholder Agreement (the “Stockholder Agreement”) with Advantest on July 30, 2020. Pursuant to the Stockholder Agreement, Advantest agreed that the SPA Shares will be subject to a five-year lock-up period and Advantest will be subject to a five-year standstill period. The lock-up periods shall terminate upon occurrence of certain events (“Termination Event”) stipulated in the Stockholder Agreement. Advantest is permitted to sell, transfer or dispose of the SPA Shares at any time to an affiliate or in order to maintain Advantest’s equivalent percentage beneficial ownership at 9.9% of the Company’s outstanding shares of common stock. Prior to the expiration of the lock-up period, upon the occurrence of certain events, for so long as the SPA Shares constitute at least 2.0% of the Company’s outstanding shares of common stock, if Advantest proposes to sell, transfer or dispose of any SPA Shares, the SPA Shares can be repurchased by the Company in its sole option at a repurchase price to be determined pursuant to the SPA.
Pursuant to the Stockholder Agreement, for so long as a Termination Event has not occurred, Advantest agreed to vote the SPA Shares in the manner recommended by the Board of Directors as reflected in any Company proxy statement, except on matters of: (i) the issuance of Company securities subject to Nasdaq Rule 5635(b), (ii) the approval of any merger, consolidation, or amalgamation (or similar business combination) of the Company, (iii) an amendment of the Company’s Certificate of Incorporation that would disproportionately and adversely affect Advantest, or (iv) any voluntary or involuntary bankruptcy, dissolution, insolvency, reorganization, rehabilitation or similar event of the Company.
There was no occurrence of any of the termination events as of the issuance of these consolidated financial statements.
ii. Amendment #1 to Software License & Related Services Agreement
The Company entered into Amendment #1 to that certain Software License and Related Services Agreement (“SLA”), dated as of March 25, 2020 (“Amendment #1 to SLA”) with Advantest. Amendment #1 to SLA provides for an exclusive commercial arrangement in which the Company and Advantest will collaborate on, and the Company will initially host, develop and maintain, an Advantest-specific cloud layer on the Exensio platform. Amendment #1 to SLA provides for a renewable five-year cloud-based subscription by Advantest to the Company’s Exensio analytics platform and related services to be provided by the Company for an aggregate subscription price of over $50.0 million over the initial five-year term, subject to the achievement of certain milestones and the Company’s standard warranty and service level commitments.
iii. Development Agreement
The Company also entered into a multi-year Amended and Restated Master Development Agreement (the “Development Agreement”) with Advantest, pursuant to which the Company and Advantest agreed to collaborate on extensions to or combinations of both of their existing technology and new technology to address mutual customers’ needs (the “Integrated Products”) through one or more development phases subject to certain conditions as set forth therein. The Development Agreement includes the Company’s assistance in the development of a cloud-based software solution for Advantest’s customers that is based on the Company’s Exensio
software analytics platform for both Advantest’s internal use as well as use by Advantest’s customers. Except as may be separately set forth in a statement of work, each party will bear its own costs and expenses incurred in connection with its development thereunder. Either party may terminate the Development Agreement or any statement of work thereunder at any time upon thirty (30) days’ prior written notice.
iv. Commercial Agreement
Costs and expenses incurred related to the Development Agreement have not been significant for the year ended December 31, 2020.
The Company also entered into a multi-year Master Commercial Terms and Support Services Agreement (the “Commercial Agreement”) with Advantest. Pursuant to the Commercial Agreement, the Company and Advantest agreed to (i) commercialize and sell Integrated Products that are generated from the Development Agreement according to revenue sharing for each Integrated Product (as defined in the Commercial Agreement) as generally set forth in the Commercial Agreement and Integrated-Product specific revenue sharing and other terms agreed by the parties from time to time in addenda entered into thereunder; and (ii) provide technical services to support end customers’ use of the Integrated Products according to agreed-upon technical support sharing principles as set forth in the Commercial Agreement. Either party may terminate the Commercial Agreement at any time upon ninety (90) days’ prior written notice. Notwithstanding the foregoing, each party agreed to provide continuing technical support services for Integrated Products sold prior to termination as generally set forth in the Commercial Agreement.
Costs and expenses incurred related to the Commercial Agreement with Advantest have not been significant for the year ended December 31, 2020.
Analytics revenue recognized from Advantest during the year ended December 31, 2020 was $3.4 million. Accounts receivable from Advantest amounted to $0.3 million, and deferred revenue amounted to $5.9 million as of December 31, 2020.
The Company carries out transactions with Advantest on arm’s length commercial customary terms.
4. BUSINESS COMBINATION
On December 1, 2020 (the “Acquisition Date”), the Company acquired all the stock of Cimetrix Incorporated via a reverse triangular merger pursuant to which a newly formed subsidiary of the Company merged with and into Cimetrix, with Cimetrix as the surviving entity and a wholly-owned subsidiary of the Company. Cimetrix a global provider of equipment connectivity products for smart manufacturing and Industry 4.0 that enable factory equipment to communicate to increase productivity, reduce costs, and improve quality. Cimetrix products are used by over 150 capital equipment companies to provide factory automation connectivity for hundreds of equipment types. The combination of Cimetrix connectivity products and platforms with the Company’s Exensio analytics platform powered by machine learning, is intended to enable IC, assembly, and electronics manufacturer customers to extract more intelligence from their tools, not just data, to build more reliable chips and systems at lower manufacturing costs. The total cash consideration for this acquisition was $35.0 million, net of cash on Cimetrix’s balance sheet as of closing, and subject to other closing adjustments, for all of the outstanding equity of Cimetrix.
The Company accounted for this acquisition 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 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. Due to the nature of the transaction, the goodwill associated with the acquisition is not deductible for tax purposes. As of December 31, 2020, payment made for this acquisition, net of cash acquired, amounted to $28.6 million and was funded from available cash of the Company. The Company held back $3.5 million of the purchase price (the “Holdback Amount”) to satisfy adjustments and claims for indemnity arising out of breaches of certain representations, warranties and covenants, and certain other enumerated items in the merger agreement. The Holdback Amount, as adjusted, is expected to be paid to the participating equity holders on approximately the twelve-month anniversary of the Acquisition Date. The Holdback Amount is recorded under “Accrued and other current liabilities” in the 2020 Consolidated Balance Sheet.
The allocation of the purchase price for this acquisition, as of the date of the acquisition, is as follows (in thousands, except amortization period):
| | Amount | | | Amortization Period (Years) | | Allocation of Purchase Price: | | | | | | | | Assets | | | | | | | | Fair value of tangible assets (including cash of $5,900) | | $ | 8,403 | | | | | Fair value of intangible assets: | | | | | | | | Developed technology | | | 12,541 | | | 8 | | In-process R&D | | | 3,635 | | | N/A | | Customer relationships | | | 1,967 | | | 10 | | Noncompetition agreements | | | 848 | | | 3 | | Tradenames and trademarks | | | 808 | | | 10 | | Goodwill | | | 13,481 | | | N/A | | Total assets acquired | | $ | 41,683 | | | | | Liabilities | | | | | | | | Accounts payable and accrued expenses | | $ | 1,437 | | | | | Deferred revenue | | | 391 | | | | | Operating lease liabilities | | | 132 | | | | | Deferred tax liabilities | | | 1,743 | | | | | Total liabilities assumed | | $ | 3,703 | | | | | Total consideration, net | | $ | 37,980 | | | | |
The estimated fair value of accounts receivable acquired approximates the contractual value of $1.6 million.
Pursuant to the merger agreement, the Company will also make payments to certain employees, subject to their continued employment with Cimetrix, through the second quarter of 2024. The estimated total cash payout is about $1.4 million and will be paid at various scheduled payout dates. This amount will be recognized as compensation expense over the period as services are rendered. As of December 31, 2020, accrued compensation recorded under “Accrued compensation and related benefits” in the Consolidated Balance Sheet amounted to $0.3 million.
Acquisition-Related Transaction Costs - Transaction expenses related to the acquisition of Cimetrix aggregated $1.6 million for the year ended December 31, 2020. These costs consist of professional fees and administrative costs and were expensed as incurred in the Company’s Consolidated Statement of Comprehensive Loss.
The amount of revenues related to Cimetrix that was included in the Company’s consolidated statement of comprehensive loss for the year ended December 31, 2020 since the acquisition date was not significant. Unaudited pro forma information is not included as the Company deemed the transaction to not qualify as a significant business combination.
5.3. PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands): | | December 31, | | | | | 2020 | | | 2019 | | | | | | | | | | | | | | December 31, | | | | 2023 | | 2022 | Computer equipment | | $ | 11,585 | | | $ | 10,880 | | | $ | 12,515 | | $ | 11,853 | Software | | 5,451 | | | 4,690 | | | | 5,596 | | | 5,395 | Furniture, fixtures, and equipment | | 2,507 | | | 2,395 | | | | 2,501 | | | 2,484 | Leasehold improvements | | 6,255 | | | 6,095 | | | | 6,475 | | | 6,467 | Laboratory and other equipment | | 3,451 | | | 4,933 | | | | 4,891 | | | 4,431 | Test equipment | | 26,010 | | | 22,980 | | | | 25,044 | | | 28,403 | Construction-in-progress | | | 20,278 | | | | 18,245 | | | | | 75,537 | | | 70,218 | | | Less: accumulated depreciation and amortization | | | (36,295 | ) | | | (29,420 | ) | | Property and equipment in progress: | | | | | | | | DFI™ system assets | | | | 22,864 | | | 22,231 | CV® system and other assets | | | | 6,977 | | | 5,105 | | | | | 86,863 | | | 86,369 | Less: Accumulated depreciation and amortization | | | | (49,525) | | | (46,195) | Total | | $ | 39,242 | | | $ | 40,798 | | | $ | 37,338 | | $ | 40,174 |
Test equipment mainly includes DFI™ systems and CV® systems assets at customer sites that are contributing to Analytics revenue from DFI systems. The construction-in-progress balance related torevenue. Property and equipment in progress represent the development or construction of DFI™ assets totaled $18.9 millionproperty and $16.6 million as of December 31, 2020 equipment that have not yet been placed in service for the Company’s intended use and 2019, respectively. are not depreciated.Depreciation and amortization expense for the years ended December 31, 2020 2023, 2022 and 20192021 was $6.7$5.0 million, $5.5 million and $6.0$6.2 million, respectively. 6.In 2021, the Company wrote down the value of its property and equipment by $3.2 million related to its first-generation of e-beam tools for DFI systems wherein carrying values may not be fully recoverable due to lack of market demand and future needs of its customers for these tools.
4. GOODWILL AND INTANGIBLE ASSETS The Company completed the acquisition of CimetrixLantern Machinery Analytics, Inc. in the year ended December 31, 2020. 2023. Refer to Note 414 for additional information related to the goodwill and intangible assets added from this acquisition. As of December 31, 2020 2023 and 2019,2022, the carrying amountsamount of goodwill were $15.8was $15.0 million and $2.3$14.1 million, respectively. The following table summarizes goodwill transaction for the yearyears ended December 31, 2020 2023, 2022 and 2019:2021 (in thousands): | | December 31, | | | (Dollars in thousands) | | 2020 | | | 2019 | | | | | | | | | | | | | | | | | Year Ended December 31, | | | | 2023 | | 2022 | | 2021 | Balance at beginning of year | | $ | 2,293 | | | $ | 2,293 | | | $ | 14,123 | | $ | 14,123 | | $ | 15,774 | Addition | | | 13,481 | | | | 0 | | | | 895 | | | — | | | — | Measurement period acquisition adjustment | | | | — | | | — | | | (1,651) | Foreign currency translation adjustment | | | | 11 | | | — | | | — | Balance at end of year | | $ | 15,774 | | | $ | 2,293 | | | $ | 15,029 | | $ | 14,123 | | $ | 14,123 |
Intangible assets balance was $24.6$15.6 million and $6.2$18.1 million as of December 31, 2020 2023 and 2019,2022, respectively. Intangible assets as of December 31, 2020 2023 and 2019,2022, consist of the following:following (in thousands): | | | | December 31, 2020 | | | December 31, 2019 | | | | Amortization | | Gross | | | | | | | Net | | | Gross | | | | | | | Net | | | | Period | | Carrying | | | Accumulated | | | Carrying | | | Carrying | | | Accumulated | | | Carrying | | (Dollars in thousands) | | (Years) | | Amount | | | Amortization | | | Amount | | | Amount | | | Amortization | | | Amount | | Customer relationships | | 1 - 10 | | $ | 9,407 | | | $ | (5,398 | ) | | $ | 4,009 | | | $ | 7,440 | | | $ | (4,935 | ) | | $ | 2,505 | | Developed technology | | 4 - 9 | | | 30,000 | | | | (14,987 | ) | | | 15,013 | | | | 17,460 | | | | (14,101 | ) | | | 3,359 | | Tradenames and trademarks | | 2 - 10 | | | 1,598 | | | | (706 | ) | | | 892 | | | | 790 | | | | (673 | ) | | | 117 | | Patent | | 7 - 10 | | | 1,800 | | | | (1,600 | ) | | | 200 | | | | 1,800 | | | | (1,560 | ) | | | 240 | | Noncompetition agreements | | 3 | | | 848 | | | | (24 | ) | | | 824 | | | | 0 | | | | 0 | | | | 0 | | In-process R&D | | * | | | 3,635 | | | | — | | | | 3,635 | | | | 0 | | | | — | | | | 0 | | Total | | | | $ | 47,288 | | | $ | (22,715 | ) | | $ | 24,573 | | | $ | 27,490 | | | $ | (21,269 | ) | | $ | 6,221 | |
* Non-amortizing intangible asset
| | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2023 | | December 31, 2022 | | | Amortization | | Gross | | | | | Net | | Gross | | | | | Net | | | Period | | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying | | | (Years) | | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount | Acquired identifiable intangibles: | | | | | | | | | | | | | | | | | | | | | Customer relationships | | 1-10 | | $ | 9,508 | | $ | (7,335) | | $ | 2,173 | | $ | 9,407 | | $ | (6,684) | | $ | 2,723 | Developed technology | | 4-9 | | | 34,650 | | | (22,094) | | | 12,556 | | | 33,635 | | | (19,647) | | | 13,988 | Tradename and trademarks | | 2-10 | | | 1,598 | | | (1,025) | | | 573 | | | 1,598 | | | (918) | | | 680 | Patent | | 6-10 | | | 2,100 | | | (1,782) | | | 318 | | | 2,100 | | | (1,696) | | | 404 | Noncompetition agreements | | 3 | | | 848 | | | (848) | | | — | | | 848 | | | (588) | | | 260 | Total | | | | $ | 48,704 | | $ | (33,084) | | $ | 15,620 | | $ | 47,588 | | $ | (29,533) | | $ | 18,055 |
The weighted average amortization period for acquired identifiable intangible assets was 7.45.3 years as of December 31, 2020. Intangible asset2023. The following table summarizes intangible assets amortization expense for years ended December 31, 2020 and 2019 was $1.4 million and $1.2 million, respectively. in the Consolidated Statements of Comprehensive Income (Loss) (in thousands): | | | | | | | | | | | | Year Ended December 31, | | | 2023 | | 2022 | | 2021 | Amortization of acquired technology included under costs of revenues | | $ | 2,266 | | $ | 2,214 | | $ | 2,079 | Amortization of acquired intangible assets presented separately under costs and expenses | | | 1,285 | | | 1,270 | | | 1,255 | Total amortization of acquired intangible assets | | $ | 3,551 | | $ | 3,484 | | $ | 3,334 |
The Company expects annual amortization of acquired identifiable intangible assets to be as follows (in thousands): | | | | | Year Ending December 31, | | | | | Amount | 2021 | | $ | 3,221 | | | 2022 | | 3,013 | | | 2023 | | 2,990 | | | 2024 | | 2,592 | | | $ | 3,237 | 2025 | | 2,427 | | | | 3,072 | 2026 and thereafter | | | 6,695 | | | 2026 | | | | 2,903 | 2027 | | | | 2,750 | 2028 | | | | 2,445 | 2029 and thereafter | | | | 1,213 | Total future amortization expense | | $ | 20,938 | | | $ | 15,620 |
There were 0 no impairmentcharges for goodwill and intangible assets for the years ended December 31, 2023, 2022 and 2021. 5. LEASES In 2022, the Company early terminated an office lease contract. The termination of this lease reduced the Company’s operating lease ROU assets and lease liabilities by approximately $0.5 million and $0.6 million, respectively. The gain from the lease termination of approximately $0.1 million was recorded under selling, general and administrative expense in the accompanying Consolidated Statement of Comprehensive Loss for the year ended December 31, 2020 and 2019.2022. Lease expense was comprised of the following (in thousands): | | Year Ended December 31, | | | | 2020 | | | 2019 | | Operating lease expense | | $ | 1,828 | | | $ | 1,840 | | Short-term lease and variable lease expense | | | 545 | | | | 492 | | Total lease expense | | $ | 2,373 | | | $ | 2,332 | |
| | | | | | | | | | | | Year Ended December 31, | | | 2023 | | 2022 | | 2021 | Operating lease expense (1) | | $ | 1,534 | | $ | 1,457 | | $ | 1,860 | Short-term lease and variable lease expense (2) | | | 923 | | | 1,032 | | | 822 | Total lease expense | | $ | 2,457 | | $ | 2,489 | | $ | 2,682 |
| (1) | Net of gain recognized upon lease termination of $0.1 million in the year ended December 31, 2022. |
| (2) | Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease expense for the periods presented primarily included common area maintenance charges. |
Supplemental consolidated balance sheets information related to leases was as follows: | | December 31, | | | | 2020 | | | 2019 | | Weighted average remaining lease term under operating ROU leases (in years) | | | 6.4 | | | | 7.2 | | Weighted average discount rate for operating lease liabilities | | | 5.24 | % | | | 5.25 | % | Operating lease ROU assets obtained (in thousands) | | $ | 286 | | | $ | 333 | |
| | | | | | | | | | December 31, | | | | 2023 | | 2022 | | Weighted average remaining lease term under operating leases (in years) | | | 4.4 | | | 5.3 | | Weighted average discount rate for operating lease liabilities | | | 4.96 | % | | 4.87 | % |
Maturity of operating lease liabilities as of December 31, 2020,2023, are as follows (in thousands): Year ending December 31, | | Amount(1) | | 2021 | | $ | 1,967 | | 2022 | | | 1,704 | | 2023 | | | 1,387 | | 2024 | | | 1,074 | | 2025 | | | 1,091 | | 2026 and thereafter | | | 2,703 | | Total future minimum lease payments | | $ | 9,926 | | Less: Interest(2) | | | (1,484 | ) | Present value of operating lease liabilities(3) | | $ | 8,442 | |
| | | | Year Ending December 31, | | Amount (1) | 2024 | | $ | 1,663 | 2025 | | | 1,611 | 2026 | | | 1,355 | 2027 | | | 1,294 | 2028 | | | 929 | 2029 | | | 63 | Total future minimum lease payments | | | 6,915 | Less: Interest (2) | | | (729) | Present value of future minimum lease payments under operating lease liabilities (3) | | $ | 6,186 |
| (1) | (1)
| As of December 31, 2020,2023, the total operating lease liability includes $1.0 million related to an option to extend a lease term that is reasonably certain to be exercised. |
| (2) | (2)
| Calculated using incremental borrowing interest rate for each lease. |
| (3) | (3)
| Includes the current portion of operating lease liabilities of $1.9$1.5 million as of December 31, 2020. 2023. |
8.6. COMMITMENTS AND CONTINGENCIES
Strategic Partnership with Advantest See Note 313 for the discussion about the Company’s commitments under the strategic partnership with Advantest. Operating Leases Refer to Note 7, Leases,5, “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 90 days following delivery of its products. The Company also indemnifies certain customers from third-partythird-party claims of intellectual propertyIP infringement relating to the use of its products. Historically, costs related to these guarantees have not been significant. The Company is unable to estimate the maximum potential impact of these guarantees on its future results of operations. Purchase obligations Obligations The Company has purchase obligations with certain suppliers for the purchase of goods and services entered in the ordinary course of business. As of December 31, 2020,2023, total outstanding purchase obligations were $13.4$26.2 million, the majority of which are due within the next 12 months. 2 years. 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, other than in cases of fraud or other willful misconduct. 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. Litigation 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 December 31, 2020,2023, except as disclosed below, the Company was not party to any material legal proceedings thus nofor which a loss was probable and noor 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 against SMIC New Technology Research & Development (Shanghai) Corporation (“SMIC”) due to SMIC’s failure to pay fees due to PDFthe 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. TheSMIC 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. A decision is on-going. currently expected in 2024. 9. STOCKHOLDERS’ EQUITY
Issuance of Common Stock
On July 30, 2020, the Company issued 3,306,924 shares of common stock, at a purchase price of $19.7085 per share, for aggregate gross proceeds of $65.2 million pursuant to a Securities Purchase Agreement with Advantest dated July 29, 2020. Issuance costs related to this private placement aggregated $0.1 million. See Note 3, Securities Purchase Agreement with Advantest, for further details.
7. STOCKHOLDERS’ EQUITY Stock Repurchase Program On May 28, 2020, the Company’s 2018 stock repurchase program (the “2018 Program”) that was originally adopted on May 29, 2018, expired. On June 4, 2020, the Company’s Board of Directors adopted a new stock repurchase program (the “2020“2020 Program”) to repurchase up to $25.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-110b5-1 plans, over the next two years. During the year ended December 31, 2022, 218,858 shares were repurchased by the Company under the 2020 0Program at an average price of $26.40 per share for an aggregate total price of $5.8 million. During the year ended December 31, 2021, 251,212 shares were repurchased by the Company under the 2020 Program at an average price of $18.01 per share for an aggregate total price of $4.5 million. In total, 470,070 shares were repurchased under the 2020 and 2018 programs. During year ended December 31, 2019, Company repurchased approximately 785,000 shares under the 2018 Program. As of May 28, 2020 approximately 786,000 shares had been repurchasedProgram at an average price of $12.43$21.91 per share, for aan aggregate total price of $9.8$10.3 million. On April 11, 2022, the Board of Directors terminated the 2020 Program, and adopted a new program (the “2022 Program”) to repurchase up to $35.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, from time to time, over the next two years. During the year ended December 31, 2023, 21,340 shares were repurchased by the Company under the 2018 Program.2022 Program at an average price of $34.81 per share for an aggregate total price of $0.7 million. During the year ended December 31, 2022, 714,600 shares were repurchased by the Company under the 2022 Program at an average price of $23.36 per share for an aggregate total price of $16.7 million. In total, the Company has repurchased 735,940 shares under the 2022 Program at an average price of $23.69 per share for an aggregate total price of $17.4 million. 10.8. EMPLOYEE BENEFIT PLANS
On December 31, 2020, 2023, the Company had the following stock-based compensation plans: Employee Stock Purchase Plan Plans In July 2001, the Company adopted a ten-yearCompany’s stockholders initially approved the 2001 Employee Stock Purchase Plan, which was subsequently amended and restated in 2010 (as amended, the “2001“2010 Purchase Plan”) under whichto extend the term of the plan through May 17, 2020. Under the 2010 Purchase Plan, eligible employees can contribute up to 10% of their compensation, as defined in the Purchase Plan, towards the purchase of shares of PDF common stock at a price of 85% of the lower of the fair market value at the beginning of the offering period or the end of the purchase period. The 2010 Purchase Plan provided for twenty-four-monthtwenty-four-month offering periods with four six-monthsix-month purchase periods in each offering period. Under theThe 2010 Purchase Plan expired on May 17, 2020. Existing offering periods under the 2010 Plan continued through the applicable expiration date and the final offering period expired on January 1 of each year, starting with 2002, the number of shares reserved for issuance automatically increased by the lesser of (1) 675,000 shares, (2) 2% of the Company’s outstanding common stock on the last day of the immediately preceding year, or (3) the number of shares determined by the board of directors. At the annual meeting of stockholders on May 18, 2010, 31, 2022. On June 15, 2021, the Company’s stockholders approved an amendment to the 2021 Employee Stock Purchase Plan, to extend it through May 17, 2020 (the “2010which has a ten-year term (the “2021 Purchase Plan” and, together with the 2010 Purchase Plan, the “Employee Purchase Plans”). The Company’s proposal at its annual meetingterms of stockholders in 2020 to extend the 20102021 Purchase Plan through June 22, 2030 was not approved byare substantially similar to those of the Company’s stockholders and consequently, the 2010 Purchase Plan expired on May 17, 2020. After the 2010 Purchase Plan expired, no new offering periods commenced under the Purchase Plan; however, existing offering periods will continue until they expire in accordance with their terms, and participation in such offering periods will continue through the applicable expiration date. The finalPlan. A twenty-four-month offering period under the 20102021 Purchase Plan is expected to expirecommenced on January 31, 2022. August 1, 2021. The Company estimated the fair value of purchase rights granted under the 2010Employee Purchase PlanPlans 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: | | 2010 Purchase Plan | | | | | 2020 | | | 2019 | | | | | | | | | | | | | | | | | | | 2021 Purchase Plan | | | | | Year Ended December 31, | | | | | 2023 | | | 2022 | | | | 2021 | | Expected life (in years) | | 1.25 | | | 1.25 | | | | 1.25 | | | | 1.25 | | | | 1.25 | | Volatility | | 34.25 | % | | 44.85 | % | | | 43.66 | % | | | 48.73 | % | | | 48.00 | % | Risk-free interest rate | | 1.43 | % | | 2.49 | % | | | 5.15 | % | | | 2.75 | % | | | 0.11 | % | Expected dividend | | 0 | | | 0 | | | | — | | | | — | | | | — | | Weighted average fair value of purchase rights granted during the period | | $ | 4.83 | | | $ | 4.08 | | | $ | 15.71 | | | $ | 10.00 | | | $ | 6.71 | |
During the yearyears ended December 31, 2020 2023 and 2019,2022, a total of approximately 183,000223,608 and 172,000182,083 shares, respectively, were issued under the 2021 Purchase Plan, at a weighted-average purchase price of $9.12$17.14 per share and $8.92$16.15 per share, respectively. During the years ended December 31, 2022 and 2021 a total of 5,203 and 108,623 shares, respectively, were issued under the 2010 Purchase Plan, at a weighted-average purchase price of $13.40 per share and $9.53 per share, respectively. As of December 31, 2020, there was $0.1 million of2023, unrecognized compensation cost related to the 2021 Purchase Plan. ThatPlan was $3.0 million. This estimated unrecognized cost is expected to be recognized over a weighted average period of 0.6 year. 1.5 years. As of December 31, 2020, 5.7 million2023, 594,309 shares were available for future issuance under the 2021 Purchase Plan. Stock Incentive Plans On November 16, 2011, the Company’s stockholders initially approved the 2011 Stock Incentive Plan, which has been amended and restated and approved by the Company’s stockholders a number of times since then (as amended, the “2011“2011 Plan”). Under the 2011 Plan, the Company may award stock options, stock appreciation rights (“SARs”), stock grants or stock units covering shares of the Company’s common stock to employees, directors, non-employee directors and contractors. The aggregate number of shares reserved for awards under this planthe 2011 Plan is 11,550,00013.8 million shares, plus up to 3,500,0003.5 million shares previously issued under the 2001 Stock Plan adopted by the Company in 2001, which expired in 2011 (the “2001“2001 Plan”) that are either (i) forfeited or (ii) repurchased by the Company or are shares subject to awards previously issued under the 2001 Plan that expire or that terminate without having been exercised or settled in full on or after November 16, 2011. In case of awards other than options or SARs, the aggregate number of shares reserved under the 2011 Plan will be decreased at a rate of 1.33 shares issued pursuant to such awards. The exercise price for stock options must generally be at prices no less than the fair market value at the date of grant. Stock options generally expire ten years from the date of grant and become vested and exercisable over a four-yearfour-year period. Stock options granted under the 2001 Plan generally expire ten years from the date of grant and become vested and exercisable over a four-year period. Although no new awards may be granted under the 2001 Plan, awards made under the 2001 Plan that are currently outstanding remain subject to the terms of each such plan.
As of December 31, 2020, 12.12023, 14.3 million shares of common stock were reserved to cover stock-based awards under the 2011 Plan, of which 4.23.7 million shares were available for future grant. The number of shares reserved and available under the 2011 Plan includes 0.5 million shares that were subject to awards previously made under the 2001 Plan and were forfeited, expired or repurchased by the Company after the adoption of the 2011 Plan through December 31, 2020. 2023. As of December 31, 2020, 2023, there were no outstanding awards that had beenwere granted outside of the 2011 or 2001 Plans (collectively, the “Stock Plans”) . The Company has elected to use the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life, interest rate and expected dividend. The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options. The expected life of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees. The interest rate assumption is based upon observed Treasury yield curve rates appropriate for the expected life of the Company’s stock options. | | Stock Plans | | | | 2020 | | | 2019 | | Expected life (in years) | | | 4.45 | | | | 4.46 | | Volatility | | | 40.90 | % | | | 41.56 | % | Risk-free interest rate | | | 0.60 | % | | | 1.86 | % | Expected dividend | | | 0 | | | | 0 | | Weighted average fair value of options granted during the period | | $ | 5.75 | | | $ | 5.00 | |
No stockoptions were granted during the years ended December 31, 2023, 2022 and 2021. Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally four years. As stock-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expenses related to the Company’s stock plans and employee stock purchase planplans were allocated as follows (in thousands): | | Year Ended December 31, | | | | | 2020 | | | 2019 | | | | | | | | | | | | | | | | | Year Ended December 31, | | | | 2023 | | 2022 | | 2021 | Costs of revenues | | $ | 3,454 | | | $ | 3,185 | | | $ | 4,169 | | $ | 2,974 | | $ | 2,563 | Research and development | | 4,800 | | | 4,764 | | | | 7,711 | | | 9,391 | | | 5,515 | Selling, general and administrative | | | 4,209 | | | | 3,474 | | | Stock-based compensation expenses | | $ | 12,463 | | | $ | 11,423 | | | Selling, general, and administrative | | | | 9,604 | | | 7,284 | | | 4,853 | Stock-based compensation expense | | | $ | 21,484 | | $ | 19,649 | | $ | 12,931 |
The stock-based compensation expense in the table above includes immaterial expense or credit adjustments related to cash-settled SARs granted to certain employees. The Company accounted for these awards as liability awards and the amount was included in accrued compensation and related benefits. SARs were fully exercised in the third quarter of 2020.Stock-based compensation capitalized in the capitalized software development costs included in property and equipment, net, was approximately $0.2 million and $0.3$0.1 million for the year ended December 31, 20202023, and 2019, respectively.
nilfor the years ended December 31, 2022 and 2021. Additional information with respect to options under the Plans is as follows: | | Outstanding Options | | | | | | | | | | | | Number of Options (in thousands) | | | Weighted Average Exercise Price per Share | | | Weighted Average Remaining Contractual Term (Years) | | | Aggregate Intrinsic Value (in thousands) | | Outstanding, January 1, 2019 | | | 1,027 | | | $ | 9.75 | | | | | | | | | | Granted (weighted average fair value of $5.00 per share) | | | 102 | | | $ | 13.79 | | | | | | | | | | Exercised | | | (238 | ) | | $ | 5.41 | | | | | | | | | | Canceled | | | (87 | ) | | $ | 14.57 | | | | | | | | | | Expired | | | (59 | ) | | $ | 15.83 | | | | | | | | | | Outstanding, December 31, 2019 | | | 745 | | | $ | 10.64 | | | | | | | | | | Granted (weighted average fair value of $5.75 per share) | | | 24 | | | $ | 16.72 | | | | | | | | | | Exercised | | | (246 | ) | | $ | 10.46 | | | | | | | | | | Canceled | | | (57 | ) | | $ | 11.65 | | | | | | | | | | Expired | | | (10 | ) | | $ | 10.06 | | | | | | | | | | Outstanding, December 31, 2020 | | | 456 | | | $ | 10.95 | | | | 3.17 | | | $ | 4,864 | | Vested and expected to vest, December 31, 2020 | | | 449 | | | $ | 10.88 | | | | 3.08 | | | $ | 4,818 | | Exercisable, December 31, 2020 | | | 379 | | | $ | 10.15 | | | | 2.05 | | | $ | 4,342 | |
| | | | | | | | | | | | | Outstanding Options | | | | | | | | | | | | | Weighted | | | | | | | | Weighted | | Average | | | | | | | | Average | | Remaining | | Aggregate | | | Number of | | Exercise | | Contractual | | Intrinsic | | | Options | | Price | | Term | | Value | | | (in thousands) | | per Share | | (Years) | | (in thousands) | Outstanding, January 1, 2023 | | 68 | | $ | 16.11 | | | | | | Granted | | — | | | — | | | | | | Exercised | | (30) | | | 16.36 | | | | | | Canceled | | — | | | — | | | | | | Expired | | — | | | — | | | | | | Outstanding, December 31, 2023 | | 38 | | $ | 15.92 | | 4.05 | | $ | 619 | Vested and expected to vest, December 31, 2023 | | 38 | | $ | 15.91 | | 4.05 | | $ | 619 | Exercisable, December 31, 2023 | | 37 | | $ | 15.84 | | 3.97 | | $ | 599 |
The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of $21.60$32.14 as of December 31, 2020,2023, which would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during the years ended December 31, 2020 2023, 2022 and 20192021 was $2.2 million and $1.7 million, respectively.as follows (in thousands): | | | | | | | | | | | | Year Ended December 31, | | | 2023 | | 2022 | | 2021 | Intrinsic value of options exercised | | $ | 630 | | $ | 2,287 | | $ | 2,972 |
As of December 31, 2020, there was $0.3 million of totalTotal remaining unrecognized compensation cost net of forfeitures, related to unvested stock options. That costoptions as of December 31, 2023, which is expected to be fully recognized over a weighted average period of 2.7 years. Thein 2024, and total fair value of optionsshares vested during the year ended December 31, 2020,2023, was $0.3 million.immaterial.
Nonvested shares (restricted stock units) were as follows: | | | | | | | | | | Weighted | | | | | Average Grant | | | Shares | | Date Fair Value | | | (in thousands) | | Per Share | Nonvested, January 1, 2023 | | 2,124 | | $ | 21.29 | Granted | | 783 | | | 43.46 | Vested | | (882) | | | 21.00 | Forfeited | | (30) | | | 27.60 | Nonvested, December 31, 2023 | | 1,995 | | $ | 30.03 |
| | Shares (in thousands) | | | Fair Value | | Nonvested, January 1, 2019 | | | 1,835 | | | $ | 11.93 | | Granted | | | 952 | | | $ | 13.52 | | Vested | | | (710 | ) | | $ | 13.05 | | Forfeited | | | (190 | ) | | $ | 12.18 | | Nonvested, December 31, 2019 | | | 1,887 | | | $ | 12.30 | | Granted | | | 890 | | | $ | 21.31 | | Vested | | | (867 | ) | | $ | 13.25 | | Forfeited | | | (163 | ) | | $ | 13.23 | | Nonvested, December 31, 2020 | | | 1,747 | | | $ | 16.33 | |
The weighted average grant date fair values of restricted stock units granted during fiscal 2023, 2022 and 2021 were $43.46, $23.23 and $19.43, respectively. The total fair value of restricted stock units vested during fiscal 2023, 2022 and 2021 was as follows (in thousands): | | | | | | | | | | | | Year Ended December 31, | | | 2023 | | 2022 | | 2021 | Fair value of restricted stock units vested | | $ | 32,786 | | $ | 22,676 | | $ | 13,617 |
As of December 31, 2020,2023, there was $21.9$45.4 million of total unrecognized compensation cost related to restricted stock units. That cost is expected to be recognized over a weighted average period of 2.62.5 years. Restricted stock units do not have rights to dividends prior to vesting. 401(k)401(k) Savings Plan
In 1999,The Company sponsors a 401(k) Retirement Savings Plan (the “401(k) Plan”) covering substantially all of its US employees. The Company’s 401(k) Plan is a defined contribution plan with a 401(k) salary deferral arrangement qualified under appropriate provisions of the Company established a 401(k) tax-deferred savings plan, wherebyInternal Revenue Code (the “Code”) and applicable state laws. Under the 401(k) Plan, eligible employees may elect to defermake pre-tax salary or after-tax contributions up to 60% of their eligibleannual compensation, but notas defined by the 401(k) Plan. In addition, participants who have reached the age of 50 can elect to exceed the statutorily prescribed limitwithhold additional catch-up contributions subject to the 401(k) plan.Code and the 401(k) Plan limits. Participants may also contribute amounts representing distributions from other qualified plans (rollovers). The 401(k) plan also has a catch-upCompany may make discretionary matching contributions. In fiscal 2023 and 2022, the Company matched from 50% to 100% of each employee’s contribution feature for employees aged 50 or older who can defer up to 100%a maximum of their4% of the employee’s total eligible compensation but not to exceed the statutorily prescribed limitearnings. The Company’s matching contributions to the 401(k) plan.401(k) Plan aggregated $1.7 million and $1.6 million for the years ended December 31, 2023 and 2022. No discretionary Company contributions were made to this plan are discretionary; 0 such Company contributions have been made since the inception of this plan.Plan through December 31, 2021.
11. RESTRUCTURING CHARGES
On September 27, 2018, the Board of Directors of the Company approved a reduction in its workforce to reduce expenses and align its operations with evolving business needs. Notifications to the affected employees began on October 24, 2018.
From inception of the restructuring plan to December 31, 2020, the Company has recorded restructuring charges of $0.7 million, primarily consisting of employee separation charges. As of December 31, 2020, the Company has substantially completed the implementation of the restructuring plan, and the remaining charges expected to be incurred are not expected to be significant.
The following table summarizes the activities of restructuring liabilities under this plan (in thousands):
| | Year Ended December 31, | | | | 2020 | | | 2019 | | Beginning balance | | $ | 0 | | | $ | 244 | | Restructuring charges | | | 0 | | | | 92 | | Cash payments | | | 0 | | | | (336 | ) | Ending balance | | $ | 0 | | | $ | 0 | |
12.9. INCOME TAXES
During the years ended December 31, 2020 2023, 2022 and 2019, loss2021, income (loss) before taxesincome tax expense from U.S. operations was $3.2 million, ($18.4)1.2) million and ($8.7)19.7) million, respectively, and income before taxesincome tax expense from foreign operations was $0.3$1.7 million, $1.7 million and $1.3$1.4 million, respectively. | | | | | | | | | | | | | | Year Ended December 31, | | | | 2023 | | 2022 | | 2021 | | | Year Ended December 31, | | | | 2020 | | | 2019 | | | | | (In thousands) | | | | | | | | | | | | | | | | | | | | | | | | (In thousands) | U.S. | | | | | | | | | | | | | | | Current | | $ | (1,325 | ) | | $ | (107 | ) | | $ | (353) | | $ | 1,210 | | $ | (67) | Deferred | | 21,056 | | | (4,534 | ) | | | 3 | | | 13 | | | 1,318 | Foreign | | | | | | | | | | | | | | | Current | | 238 | | | 312 | | | | 453 | | | 577 | | | 237 | Withholding | | 2,392 | | | 2,385 | | | | 1,770 | | | 2,111 | | | 1,591 | Deferred | | | (58 | ) | | | 2 | | | | (109) | | | (12) | | | 92 | Total income tax provision (benefit) | | $ | 22,303 | | | $ | (1,942 | ) | | Total income tax expense | | | $ | 1,764 | | $ | 3,899 | | $ | 3,171 |
The income tax benefitexpense differs from the amount estimated by applying the statutory federal income tax rate (21% for 20202023, 2022 and 2019)2021) for the following reasons (in thousands): | | Year Ended December 31, | | | | | 2020 | | | 2019 | | | Federal statutory tax provision | | $ | (3,793 | ) | | $ | (1,546 | ) | | | | | | | | | | | | | | | | Year Ended December 31, | | | | 2023 | | 2022 | | 2021 | Federal statutory tax expense | | | $ | 1,016 | | $ | 106 | | $ | (3,847) | State tax provision | | 703 | | | (85 | ) | | | (65) | | | 949 | | | 239 | Stock compensation expense | | (602 | ) | | 234 | | | | (1,747) | | | (898) | | | (499) | Tax credits | | (3,488 | ) | | (2,974 | ) | | | (3,214) | | | (2,877) | | | (2,676) | Foreign tax, net | | 2,443 | | | 2,430 | | | | 1,859 | | | 2,195 | | | 1,653 | Tax law changes | | (2,237 | ) | | 0 | | | Business combination costs | | 356 | | 0 | | | Foreign-derived intangible income (FDII) deduction | | | | (1,612) | | | (830) | | | — | Change in valuation allowance | | 29,034 | | 0 | | | | 5,043 | | | 5,122 | | | 8,099 | Section 162(m) limitation | | | | 424 | | | 92 | | | — | Unrealized tax benefit reserve changes | | | | 99 | | | 136 | | | (151) | Other | | | (113 | ) | | | (1 | ) | | | (39) | | | (96) | | | 353 | Total income tax provision (benefit) | | $ | 22,303 | | | $ | (1,942 | ) | | Total income tax expense | | | $ | 1,764 | | $ | 3,899 | | $ | 3,171 |
As of December 31, 2020,2023, the Company had Federalfederal and California net operating loss carry-forwards (“NOLs”) of approximately $30.3$7.2 million and $8.7$12.7 million, respectively. Some of the Federalfederal NOLs, acquired as part of ana past acquisition, will expirehave expirations at the end of 2021this fiscal year and onwards, and the California NOLs begin expiring in 2028 onwards. As of December 31, 2020,2023, the Company had federal and state research and experimental and other tax credit (“R&D credits”) carry-forwards of approximately $19.5$23.7 million and $20.3$24.5 million, respectively. The federal credits beginbegan to expire after in 2022, while the California credits have no expiration. The extent to which the federal and state credit carry forwardscarry-forwards can be used to offset future tax liabilities, respectively, may be limited, depending on the extent of ownership changes within any three-yearthree-year period as provided in the Tax Reform Act of 1986 and the California Conformity Act of 1987. The Company assesses its deferred tax assets for recoverability on a regular basis, and where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more likely than not, be realized in the future. Based on all available evidence, both positive and negative, the Company determined a full valuation allowance was still appropriate for its federal and state net deferred tax assets (DTAs) in the fourth quarter(“DTAs”) as of 2020,December 31, 2023, primarily driven by an increaseda cumulative loss incurred over the 12-quarter12-quarter period ended December 31, 2020 2023 and the likelihood that the Company will not utilize tax attributes before they begin to expire at the end of 2022.expire. The valuation allowance was approximately $41.9$64.2 million and $10.5$59.2 million as of December 31, 2020 2023 and 2019,2022, respectively. As of December 31, 2019, The increase in the valuation allowance from December 31, 2022 to December 31, 2023 was primarily related to California R&D taxdriven by an increase in capitalized research and experimental expenses and credits and California net operating losses (NOLs) related to an acquisition that we currently do not believe to be “more-likely-than-not” to be ultimately realized.generated in the current year which require a valuation allowance. Management will continue to evaluate the need for a valuation allowance and may change its conclusion in a future period based on any change in facts (e.g. 12-quarter12-quarter cumulative profit, significant new revenue, and other relevant factors). If the Company concludes that it is more likely than not to utilize some or all of its USU.S. DTAs, it will release some or all of its valuation allowance and ourthe Company’s tax provision will decrease in the period in which we make such determination.determination is made. Net deferred tax assets, balanceafter the U.S. valuation allowance, were immaterial as of December 31, 2020 2023 and 2019 were $0.2 million and $22.9 million, respectively. 2022. The components of the net deferred tax assets are comprised of (in thousands): | | December 31, | | | | | 2020 | | | 2019 | | | | | | | | | | | | | | December 31, | | | | 2023 | | 2022 | Deferred tax assets | | | | | | | | | | | | Net operating loss carry forward | | $ | 8,085 | | | $ | 4,596 | | | $ | 3,005 | | $ | 3,861 | Research and development and other credit carry forward | | 24,723 | | | 18,944 | | | | 30,633 | | | 28,046 | Foreign tax credit carry forward | | 9,435 | | | 6,443 | | | | 7,611 | | | 11,764 | Capitalized research and experimental expenses | | | | 20,403 | | | 10,069 | Accruals deductible in different periods | | 3,471 | | | 1,968 | | | | 4,037 | | | 7,713 | Leases | | 1,669 | | 1,850 | | | | 1,282 | | | 1,623 | Intangible assets | | 0 | | | 741 | | | Stock-based compensation | | | 1,220 | | | | 1,271 | | | | 1,882 | | | 1,948 | Total deferred tax assets | | | 48,603 | | | | 35,813 | | | | 68,853 | | | 65,024 | Less: valuation allowance | | | (41,859 | ) | | | (10,486 | ) | | | (64,152) | | | (59,215) | Deferred tax assets, net of valuation allowance | | $ | 6,744 | | $ | 25,327 | | | | 4,701 | | | 5,809 | | | | | | | | | | | | Deferred tax liabilities | | | | | | | | | | | | Property and equipment, net | | (629 | ) | | (611 | ) | | | (612) | | | (540) | Operating lease right-of-use assets | | (1,669 | ) | | (1,850 | ) | | | (1,266) | | | (1,635) | Intangible assets | | | (4,218 | ) | | | 0 | | | | (2,995) | | | (3,617) | Deferred tax liabilities | | $ | (6,516 | ) | | $ | (2,461 | ) | | | (4,873) | | | (5,792) | | | | Net deferred tax assets | | $ | 228 | | | $ | 22,866 | | | | | | | | | | | Net deferred tax assets (liabilities) | | | $ | (172) | | $ | 17 |
In accordance with the accounting standard relating to accounting for uncertain tax positions, theThe Company classifies its liabilities for income tax exposures as long-term. The Company includes interest and penalties related to unrecognized tax benefits within the Company’s income tax provision. As of December 31, 2020 2023, 2022 and 2019,2021, the Company had accrued interest and penalties related to unrecognized tax benefits of $0.8$0.7 million. In the years ended December 31, 2020 2023, 2022 and 2019,2021, the Company recognized (reversal of) charges for (reversal of) interest and penalties related to unrecognized tax benefits of $33,000($15,000), ($61,000) and ($1,000)89,000) respectively, in the Consolidated Statements of Comprehensive Loss.
Income (Loss). The Company’s total amount of unrecognized tax benefits, excluding interest, and penalties, as of December 31, 20202023 was $14.3$15.9 million, of which $2.2$2.0 million, if recognized, would impact the Company’s effective tax rate. As of December 31, 2020,2023, the Company has recorded unrecognized tax benefits of $2.9$2.6 million, including interest and penalties of $0.8$0.7 million, as long-term income taxes payable in its Consolidated Balance Sheet. The remaining $12.2$14.0 million has been recorded within our deferred tax assets,DTAs, which is subject to a full valuation allowance. The Company does not expect the change in unrecognized tax benefits over the next twelve months to materially impact its results of operations and financial position. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): | | Amount | | | Gross unrecognized tax benefits, January 1, 2018 | | $ | 12,889 | | | | | | | | | | | Amount | Gross unrecognized tax benefits, January 1, 2021 | | | $ | 14,300 | Increases in tax positions for current year | | 664 | | | | 853 | Increases in tax positions for prior years | | 0 | | | | 1 | Lapse in statute of limitations | | | (261 | ) | | | (411) | Gross unrecognized tax benefits, December 31, 2018 | | 13,292 | | | Gross unrecognized tax benefits, December 31, 2021 | | | | 14,743 | Increases in tax positions for current year | | 667 | | | | 988 | Increases in tax positions for prior years | | 1 | | | | — | Lapse in statute of limitations | | | (345 | ) | | | (622) | Gross unrecognized tax benefits, December 31, 2019 | | 13,615 | | | Gross unrecognized tax benefits, December 31, 2022 | | | | 15,109 | Increases in tax positions for current year | | 1,024 | | | | 1,469 | Increases in tax positions for prior years | | 71 | | | | 91 | Lapse in statute of limitations | | | (410 | ) | | | (732) | Gross unrecognized tax benefits, December 31, 2020 | | $ | 14,300 | | | Gross unrecognized tax benefits, December 31, 2023 | | | $ | 15,937 |
The Company does not provide deferred taxes on undistributed earnings of its foreign subsidiaries as it intends to indefinitely reinvest those earnings. The Company conducts business globally and, as a result, files numerous consolidated and separate income tax returns in the U.S. federal, various state and foreign jurisdictions. For U.S. federal and California income tax purposes, the statute of limitations currently remains open for the years ending 2017ended 2020 to present and 20162019 to present, respectively. In addition, due to NOL carryback claims, the tax years 2013 through 2015may be subject to federal examination and all of the net operating lossNOLs and research and developmentR&D credit carryforwardscarry-forwards that may be utilized in future years may be subject to federal and state examination. The Company is not subject to currently under income tax examinations in the U.S. or in any other of its major foreign subsidiaries’ jurisdictions. Valuation allowance for deferred tax assetsDTAs is summarized (in thousands): | | Balance at Beginning of Period | | | Charged to Costs and Expenses | | | Deductions/ Write-offs of Accounts | | | Balance at End of Period | | Valuation allowance for deferred tax assets | | | | | | | | | | | | | | | | | 2020 | | $ | 10,486 | | | $ | 31,373 | | | $ | 0 | | | $ | 41,859 | | 2019 | | $ | 9,808 | | | $ | 678 | | | $ | 0 | | | $ | 10,486 | |
| | | | | | | | | | | | | | | Balance at | | Charged to | | Deductions/ | | Balance at | | | Beginning | | Income Tax | | Write-offs of | | End of | | | of Period | | Expense | | Accounts | | Period | 2023 | | $ | 59,215 | | $ | 4,937 | | $ | — | | $ | 64,152 | 2022 | | $ | 51,586 | | $ | 7,629 | | $ | — | | $ | 59,215 | 2021 | | $ | 41,859 | | $ | 9,727 | | $ | — | | $ | 51,586 |
13.10. NET LOSSINCOME (LOSS) PER SHARE
Basic net lossincome (loss) per share is computed by dividing net lossincome (loss) by weighted average number of common shares outstanding for the period (excluding outstanding stock options and shares subject to repurchase). Diluted net lossincome (loss) per share is computed using the weighted-averageweighted average number of common shares outstanding for the period plus the potential effect of dilutive securities which are convertible into common shares (using the treasury stock method), except in cases in which the effect would be anti-dilutive. The following is a reconciliation of the numerators and denominators used in computing basic and diluted net lossincome (loss) per share (in thousands except per share amount): | | Year Ended December 31, | | | | 2020 | | | 2019 | | Numerator: | | | | | | | | | Net loss | | $ | (40,363 | ) | | $ | (5,418 | ) | Denominator: | | | | | | | | | Basic weighted-average shares outstanding | | | 34,458 | | | | 32,411 | | Effect of dilutive options and restricted stock units | | | 0 | | | | 0 | | Diluted weighted-average shares outstanding | | | 34,458 | | | | 32,411 | | | | | | | | | | | Net loss per share – Basic | | $ | (1.17 | ) | | $ | (0.17 | ) | Net loss per share – Diluted | | $ | (1.17 | ) | | $ | (0.17 | ) |
| | | | | | | | | | | | Year Ended December 31, | | | 2023 | | 2022 | | 2021 | Numerator: | | | | | | | | | | Net income (loss) | | $ | 3,105 | | $ | (3,429) | | $ | (21,488) | Denominator: | | | | | | | | | | Basic weighted average shares outstanding | | | 38,015 | | | 37,309 | | | 37,138 | Effect of dilutive stock options, unvested restricted stock units, and shares of common stock expected to be issued under employee stock purchase plan(s) | | | 922 | | | — | | | — | Diluted weighted average shares outstanding | | | 38,937 | | | 37,309 | | | 37,138 | | | | | | | | | | | Net income (loss) per share: | | | | | | | | | | Basic | | $ | 0.08 | | $ | (0.09) | | $ | (0.58) | Diluted | | $ | 0.08 | | $ | (0.09) | | $ | (0.58) |
For the years ended December 31, 2020 2022 and 2019,2021, because the Company was in a loss position, basic net loss per share is the same as diluted net loss per share as the inclusion of the potential common shares would have been anti-dilutive. The following table sets forth potential shares of common stock that are not included in the diluted net lossincome (loss) per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands): | | Year Ended December 31, | | | | | 2020 | | | 2019 | | | | | | | | | | | | | | Year Ended December 31, | | | | 2023 | | 2022 | | 2021 | Outstanding options | | 332 | | | 538 | | | — | | 56 | | 170 | Nonvested shares of restricted stock units | | 921 | | | 915 | | | Non-vested restricted stock units | | | 351 | | 787 | | 968 | Employee Stock Purchase Plan | | | 160 | | | | 141 | | | — | | 84 | | 33 | Total | | | 1,413 | | | | 1,594 | | | 351 | | 927 | | 1,171 |
14.11. 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. The Company’s chief operating decision maker, the chief executive officer, reviews discrete financial information presented on a consolidated basis for purposes of regularly making operating decisions, allocation of resources, and assessing financial performance. Accordingly, the Company considers itself to be in one operating and reporting segment, specifically the provision of services for differentiated data and analytics solutions to the semiconductor and electronics industries. Revenues from individual customers in excessthat are approximately 10% or more of 10% ofthe Company’s consolidated total revenues are as follows: | | | | | | | | | | | | Year Ended December 31, | | Customer | | 2023 | | | 2022 | | | 2021 | | A | | 35 | % | | 31 | % | | 17 | % | B | | * | % | | 10 | % | | * | % | D | | * | % | | * | % | | 10 | % |
| | Year Ended December 31, | | Customer | | 2020 | | | 2019 | | A | | | 23 | % | | | 31 | % |
The Company had grossGross accounts receivable balances (including amounts that are unbilled) from individual customers in excessthat are approximately 10% or more of 10% of the Company’s gross accounts receivable balance are as follows:
| | December 31, | | Customer | | 2020 | | | 2019 | | A | | | 16 | % | | | 27 | % | B | | | * | % | | | 14 | % | C | | | 11 | % | | | 12 | % |
__________________________
| | | | | | | | | December 31, | | Customer | | 2023 | | | 2022 | | A | | 39 | % | | 29 | % | B | | * | % | | 12 | % | C | | * | % | | 12 | % | G | | 11 | % | | * | % |
| * represents less than 10% | represents less than 10% |
Revenues from customers by geographic area based on the location of the customers’ work sites are as follows (in thousands): | | Year Ended December 31, | | | | | 2020 | | | 2019 | | | | | Revenues | | | Percentage of Revenues | | | Revenues | | | Percentage of Revenues | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | | | 2023 | | | 2022 | | | 2021 | | | | | | | | Percentage | | | | | | Percentage | | | | | | Percentage | | | | | Revenues | | of Revenues | | $ | Revenues | | of Revenues | | $ | Revenues | | of Revenues | | United States | | $ | 36,723 | | | 42 | % | | $ | 36,169 | | | 42 | % | | $ | 92,798 | | 56 | % | | $ | 73,625 | | 50 | % | | $ | 50,374 | | 45 | % | China | | 13,776 | | | 16 | | | 13,960 | | | 16 | | | | 26,488 | | 16 | | | | 24,494 | | 16 | | | | 14,267 | | 13 | | Taiwan | | 8,038 | | | 9 | | | 8,574 | | | 10 | | | Japan | | | | 10,465 | | 6 | | | 13,916 | | 9 | | | 11,097 | | 10 | | Rest of the world | | | 29,509 | | | | 33 | | | | 26,882 | | | | 32 | | | | 36,084 | | 22 | | | | 36,514 | | 25 | | | | 35,322 | | 32 | | Total revenue | | $ | 88,046 | | | | 100 | % | | $ | 85,585 | | | | 100 | % | | $ | 165,835 | | 100 | % | | $ | 148,549 | | 100 | % | | $ | 111,060 | | 100 | % |
Long-lived assets, net by geographic area is as follows (in thousands): | | December 31, | | | | | | 2020 | | | | 2019 | | | United States | | $ | 43,663 | | | $ | 46,000 | | | | | | | | | | | | | | December 31, | | | | 2023 | | 2022 | United States (1) | | | $ | 45,619 | | $ | 44,730 | Rest of the world | | | 2,251 | | | | 2,407 | | | | 1,362 | | | 1,446 | Total long-lived assets, net | | $ | 45,914 | | | $ | 48,407 | | | $ | 46,981 | | $ | 46,176 |
| (1) | Includes assets deployed at customer sites which could be outside the U.S. |
15. FINANCIAL INSTRUMENTS
12. 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 more significant inputs or value drivers are unobservable. |
The following table represents the Company’s assets measured at fair value on a recurring basis as of December 31, 2023 and the basis for that measurement (in thousands): | | | | | | | | | | | | | | | Fair Value Measurements Using | | | | | | Quoted | | | | | | | | | | | | Prices in | | | | | | | | | | | | Active | | Significant | | | | | | | | | Markets for | | Other | | | | | | | | | Identical | | Observable | | Significant | | | December 31, | | Assets | | Inputs | | Unobservable | Assets | | 2023 | | (Level 1) | | (Level 2) | | Inputs (Level 3) | Cash equivalents | | | | | | | | | | | | | Money market mutual funds | | $ | 83,810 | | $ | 83,810 | | $ | — | | $ | — | Short-term investments (available-for-sale debt securities) | | | | | | | | | | | | | U.S. Government securities (1) | | | 36,544 | | | 36,544 | | | — | | | — | Total | | $ | 120,354 | | $ | 120,354 | | $ | — | | $ | — |
The following table represents the Company’s assets measured at fair value on a recurring basis as of December 31, 20202022 and the basis for that measurement (in thousands): Assets | | Total | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Cash equivalents | | | | | | | | | | | | | | | | | Money market mutual funds | | $ | 18,012 | | | $ | 18,012 | | | $ | 0 | | | $ | 0 | | Short-term investments (available-for-sale debt securities) | | | | | | | | | | | | | | | | | U.S. Treasury bills (1) | | | 114,981 | | | | 114,981 | | | | 0 | | | | 0 | | Total | | $ | 132,993 | | | $ | 132,993 | | | $ | 0 | | | $ | 0 | |
__________________________
| | | | | | | | | | | | | | | Fair Value Measurements Using | | | | | | Quoted | | | | | | | | | | | | Prices in | | | | | | | | | | | | Active | | Significant | | | | | | | | | Markets for | | Other | | Significant | | | | | | Identical | | Observable | | Unobservable | | | December 31, | | Assets | | Inputs | | Inputs | Assets | | 2022 | | (Level 1) | | (Level 2) | | (Level 3) | Cash equivalents | | | | | | | | | | | | | Money market mutual funds | | $ | 75,738 | | $ | 75,738 | | $ | — | | $ | — | U.S. Government securities (1) | | | 1,990 | | | 1,990 | | | — | | | — | Short-term investments (available-for-sale debt securities) | | | | | | | | | | | | | U.S. Government securities (1) | | | 19,557 | | | 19,557 | | | — | | | — | Total | | $ | 97,285 | | $ | 97,285 | | $ | — | | $ | — |
| (1) | (1)
| The carrying amount of the Company’s investments in U.S. Treasury billsGovernment securities approximate 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 at as of December 31, 2020. 2023 and 2022. |
13. 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 3,306,924 shares of its common stock, for aggregate gross proceeds of $65.2 million; (ii) a significant agreement for its assistance in development of cloud-based applications for Advantest tools that leverages our Exensio analytics software ; (iii) a commercial agreement providing for the license to third parties of solutions that result from the development work that combine Advantest’s testing applications and our Exensio platform; and (iv) a 5-year cloud-based subscription for Exensio analytics software and related services. Analytics revenue recognized from Advantest during the years ended December 31, 2023, 2022 and 2021 was $9.0 million, $10.3 million and $10.6 million, respectively. Accounts receivable from Advantest were not material as of December 31, 2023 and amounted to $0.3 million as of December 31, 2022. Deferred revenue amounted to $9.4 million and $7.1 million as of December 31, 2023 and 2022, respectively. The following table representsCompany carries out transactions with Advantest on arm’s length commercial customary terms. 14. BUSINESS COMBINATION On July 5, 2023 (the “Acquisition Date”), the Company, through its wholly-owned subsidiary in Canada, PDF Solutions Canada, Ltd., acquired 100% of the equity interest in Lantern Machinery Analytics, Inc. headquartered in Canada, a privately-held provider of automated image analysis and feature extraction AI/ML software for critical inspection and metrology steps at battery cell development and manufacturing processes for the electric vehicle industry. This software will enhance the Company’s Exensio analytics software and product offerings to new and existing battery manufacturer customers. The total cash consideration for this acquisition was $1.8 million, net of cash acquired, for all of the outstanding equity of Lantern Machinery Analytics, Inc. The Company accounted for this acquisition as a business combination in accordance with FASB ASC Topic 805, Business Combinations. This method requires that assets measuredacquired and liabilities assumed in a business combination be recognized at their respective estimated fair value on a recurring basisvalues as of December 31, 2019 and the basis for that measurement (in thousands): Assets | | Total | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | Cash equivalents | | | | | | | | | | | | | | | | | Money market mutual funds | | $ | 27,644 | | | $ | 27,644 | | | $ | 0 | | | $ | 0 | |
From time to time,Acquisition Date. The excess of purchase consideration over the Company enters into foreign currency forward contracts to reduce the exposure to foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily on third-party accounts payables and intercompany balances. The primary objective of the Company’s hedging program is to reduce volatility of earnings related to foreign currency exchange rate fluctuations. The counterparty to these foreign currency forward contracts is a financial institution that the Company believes is creditworthy, and therefore, the Company believes the credit risk of counterparty nonperformance is not significant. These foreign currency forward contracts are not designated for hedge accounting treatment. Therefore, the change in fair value of these contracts isnet tangible and identifiable intangible assets acquired was recorded into earnings as a component of other expense (income), net,goodwill. The goodwill recorded from this acquisition represents business benefits the Company anticipates from the acquired workforce and offsetsexpectation for expanded sales opportunities to foster further business growth. Due to the change in fair valuenature of the foreign currency denominated assets and liabilities, whichtransaction, the goodwill associated with the acquisition is also recorded in other expense (income), net in the Company’s Consolidated Statementsnot deductible for tax purposes. As of Comprehensive Loss. For the years ended December 31, 2020 and 2019, the Company recognized a realized loss2023, payment made for this acquisition, net of $0.2cash acquired, amounted to $1.8 million and a realized losswas funded from available cash of $0.6 million, respectively on the contracts, which is recorded in interest and other expense (income), net in the Company’s Consolidated Statements of Comprehensive Loss.Company.
The Company’s foreign currency forward contracts were classified as Level 2 because it is not actively traded and the valuation inputs are based on quoted prices and market observable data of similar instruments. As of December 31, 2020 and 2019, the Company had no outstanding forward contracts. 87
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summaryallocation of the Company’s quarterly consolidatedpurchase price for this acquisition, as of the date of the acquisition, is as follows (in thousands, except amortization period): | | | | | | | | | | | Amortization | | | Amount | | Period (Years) | Allocation of Purchase Price: | | | | | | Assets | | | | | | Fair value of tangible assets (including cash of $265) | | $ | 450 | | | Fair value of intangible assets: | | | | | | Developed technology | | | 1,010 | | 8 | Customer relationships | | | 100 | | 6 | Goodwill | | | 895 | | N/A | Total assets acquired | | | 2,455 | | | Liabilities | | | | | | Deferred tax liabilities | | | 294 | | | Accounts payable and accrued expenses | | | 73 | | | Total liabilities assumed | | | 367 | | | Total purchase price allocation | | $ | 2,088 | | |
Pro forma results of operations (unaudited) forhave not been presented because the fiscal years ended December 31, 2020 and 2019. effect of the acquisition was not material to the Company’s financial results. | | Year Ended December 31, 2020 | | | | Q1 | | | Q2 | | | Q3 | | | Q4 | | | | (In thousands, except for per share amounts) | | Total revenues | | $ | 21,158 | | | $ | 21,409 | | | $ | 23,112 | | | $ | 22,367 | | Costs of revenues | | $ | 8,487 | | | $ | 8,946 | | | $ | 9,493 | | | $ | 9,839 | | Net loss | | $ | (528 | ) | | $ | (3,652 | ) | | $ | (2,734 | ) | | $ | (33,449 | ) | Net loss per share: | | | | | | | | | | | | | | | | | Basic | | $ | (0.02 | ) | | $ | (0.11 | ) | | $ | (0.08 | ) | | $ | (0.91 | ) | Diluted | | $ | (0.02 | ) | | $ | (0.11 | ) | | $ | (0.08 | ) | | $ | (0.91 | ) |
| | Year Ended December 31, 2019 | | | | Q1 | | | Q2 | | | Q3 | | | Q4 | | | | (In thousands, except for per share amounts) | | Total revenues | | $ | 20,541 | | | $ | 20,568 | | | $ | 21,914 | | | $ | 22,562 | | Costs of revenues | | $ | 7,867 | | | $ | 7,832 | | | $ | 8,715 | | | $ | 9,059 | | Net loss | | $ | (2,691 | ) | | $ | (710 | ) | | $ | (687 | ) | | $ | (1,330 | ) | Net loss per share: | | | | | | | | | | | | | | | | | Basic | | $ | (0.08 | ) | | $ | (0.02 | ) | | $ | (0.02 | ) | | $ | (0.04 | ) | Diluted | | $ | (0.08 | ) | | $ | (0.02 | ) | | $ | (0.02 | ) | | $ | (0.04 | ) |
Item 9. Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure None.
Item 9A. 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 December 31, 2020,2023, in connection with the filing of this Annual Report on Form 10-K. Based on that evaluation, as of December 31, 2020,2023, 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. Management'sManagement’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company. Our management, with the participation of our principal executive officer and principal financial and accounting officer, assessed the effectiveness of our internal control over financial reporting (ICFR) as of December 31, 2020.2023. This evaluation was based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment under the COSO framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2020. Management has excluded the ICFR of Cimetrix Incorporated (“Cimetrix”), which we acquired on December 1, 2020 as discussed in Note 4 “Business Combination” to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Total revenues subject to Cimetrix’s ICFR represented 1% of our consolidated total revenues for the fiscal year ended December 31, 2020. Total assets subject to Cimetrix’s ICFR represented 14% of our consolidated total assets as of December 31, 2020 (of which $33.1 million, or 12% of our consolidated total assets, represents intangible assets and goodwill subject to our internal control over financial reporting as of December 31, 2020). 2023. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, excluding Cimetrix,2023, has been audited by BPM LLP, the Company's independent registered public accounting firm, as stated in their report which appears in this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting There were no changes in internal control over financial reporting during the fourth quarter ended December 31, 2020,2023, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information. Insider Adoption or Termination of Trading Arrangements During the quarter ended December 31, 2023, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. None. PART III Pursuant to Paragraph (3) of the General Instructions to Form 10-K, certain of the information required by Part III of this Form 10-K is incorporated by reference from our Proxy Statement as set forth below. The Proxy Statement is expected to be filed within 120 days of December 31, 2020. 2023.
Item 10. Directors, Executive Officers and Corporate Governance. Information with respect to our directors and our Audit Committee appears in our Proxy Statement under “Proposal No. 1 — Election of Class II Directors — Nominees for the Board ofClass II Directors” and is incorporated herein by reference. Information with respect to our executive officers appears in Part I, Item 1 — “Information about our Executive Officers” of this Form 10-K. With regard to the information required by this item regarding compliance with Section 16(a) of the Exchange Act, we will provide disclosure of delinquent Section 16(a) reports, if any, in our Proxy Statement, and such disclosure, if any, is incorporated herein by reference. Our Board of Directors has adopted a Code of Ethics (“Code of Ethics”), which is applicable to all employees of the Company, including our principal executive officer and our principal financial and accounting officer. Our Code of Ethics is available on our website at www.pdf.com, on the investor relations page. The Company’s website address provided is not intended to function as a hyperlink, and the information on the Company’s website is not, and should not be considered, part of this Annual Report on Form 10-K and is not incorporated by reference herein. You may also request a copy of our Code of Ethics in writing by sending your request to PDF Solutions, Inc., Attention: Investor Relations, 2858 De La Cruz Blvd.,Santa Clara, California 95050. If we make any substantive amendments to our Code of Ethics or grant any waiver, including any implicit waiver, from a provision of the Code of Ethics to our Chief Executive Officer or Chief Financial Officer, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.
Item 11. Executive Compensation. The information required by this item is incorporated herein by reference to the section entitled “Compensation of Executive Officers and Other Matters — Executive“Executive Compensation” in our Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters. The information required by this item is incorporated herein by reference to the section entitled “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement. Also incorporated by reference is the information in the table under the heading “Equity Compensation Plan Information” in our Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item is incorporated herein by reference to the section entitled “Certain Relationships and Related TransactionsTransactions” and Directors“Corporate Governance — Director Independence” in our Proxy Statement.
Item 14. Principal Accountant Fees and Services. Information with respect to Principal Accountant Fees and Services is incorporated by reference to “Proposal No. 2: Ratification of Appointment of Independent Registered Public Accounting Firm” in our Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules (a) | The following documents are filed as part of this report: |
| (1) | (1)
| Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firms |
The following documents are included as Part II, Item 8 of this Form 10-K: | | | | (2) | (2)
| Financial Statement Schedules |
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this Form 10-K. | (3) | (3)
| Exhibits required by Item 601 of Regulation S-K |
See Item 15(b) below. INDEX TO EXHIBITS | | | | | | | | | Incorporated by Reference | | | Exhibit Number | Exhibit Description | Form | Filing Date | Exhibit Number | SEC File Number | Provided Herewith | 3.01 | Third Amended and Restated Certificate of Incorporation of PDF Solutions, Inc. | S-1/A | 7/9/2001 | 3.2 | 333-43192 | | 3.02 | Amended and Restated Bylaws of PDF Solutions, Inc. | 8-K | 5/1/2019 | 3.1 | 000-31311 | | 4.01 | Stockholder Agreement by and between PDF Solutions, Inc. and Advantest America, Inc. dated July 30, 2020 | 10-Q | 11/6/2020 | 4.2 | 000-31311 | | 4.02 | Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 | 10-K | 3/1/2022 | 4.03 | 000-31311 | | 10.01 | Form of Indemnification Agreement between PDF Solutions, Inc. and certain of its senior executive officers and directors* | 10-K | 3/16/2009 | 10.17 | 000-31311 | | 10.02 | PDF Solutions, Inc. 2021 Employee Stock Purchase Plan* | DEF14A | 4/28/2021 | Appendix A | 000-31311 | | 10.03 | PDF Solutions, Inc. Eighth Amended and Restated 2011 Stock Incentive Plan* | DEF14A | 4/27/2023 | Appendix A | 000-31311 | | 10.04 | Form of Stock Option Agreement (Non-statutory) under PDF Solutions, Inc. 2011 Stock Incentive Plan* | 10-K | 3/15/2012 | 10.18 | 000-31311 | | 10.05 | Form of Stock Unit Agreement under PDF Solutions, Inc. 2011 Stock Incentive Plan* | 10-K | 3/15/2012 | 10.19 | 000-31311 | | 10.06 | Board of Directors Acceleration Agreement* | | | | | X | 10.07 | Employment offer to Adnan Raza, dated January 23, 2020* | 10-K | 3/10/2020 | 10.17 | 000-31311 | |
| | Incorporated by Reference | | | Exhibit Number | Exhibit Description | Form | Filing Date | Exhibit Number | SEC File No. | Provided Herewith | 10.08 | Software License and Related Services Agreement by and between PDF Solutions, Inc. and Advantest America, Inc. dated March 25, 2020 and Amendment No.1 thereto dated July 29, 2020+ | 10-Q | 11/6/2020 | 10.1 | 000-31311 | | 10.9 | Amendment #1 to Amendment #1 to Software License and Related Services Agreement by and between PDF Solutions, Inc. and Advantest America, Inc., dated June 5, 2022, by and between PDF Solutions, Inc. and Advantest America, Inc.+ | 10-Q | 11/10/2022 | 10.01 | 000-31311 | | 10.10 | Amendment #2 to Amendment #1 to Software License and Related Services Agreement by and between PDF Solutions, Inc. and Advantest America, Inc., signed November 11, 2022, by and between PDF Solutions, Inc. and Advantest America, Inc.+ | 10-K | 3/1/2023 | 10.13 | 000-31311 | | 10.11 | Amended and Restated Master Development Agreement by and between PDF Solutions, Inc. and Advantest America, Inc. dated July 29, 2020+ | 10-Q | 11/6/2020 | 10.2 | 000-31311 | | 10.12 | Addendum #1 to Revised 2020 Contract, signed March 17, 2023, by and between PDF Solutions, Inc. and Advantest America, Inc.+ | 10-Q | 8/8/2023 | 10.2 | 000-31311 | | 10.13 | Master Commercial Terms and Support Services Agreement by and between PDF Solutions, Inc. and Advantest America, Inc. dated July 29, 2020+ | 10-Q | 11/6/2020 | 10.3 | 000-31311 | | 10.14 | Securities Purchase Agreement by and between PDF Solutions, Inc. and Advantest America, Inc. dated July 29, 2020+ | 10-Q | 11/6/2020 | 4.1 | 000-31311 | | 21.01 | Subsidiaries of Registrant | | | | | X | 23.01 | Consent of BPM LLP, Independent Registered Public Accounting Firm | | | | | X |
Exhibit
Number
| | Incorporated by Reference | Description
| | 1.01Exhibit Number
| Exhibit Description | Board of Directors Acceleration Agreement (incorporated herein by reference to the registrant's Current Report on Form 8-K filed November 23, 2005)*
| 3.01
| Filing Date | Third Amended and Restated Certificate of Incorporation of PDF Solutions, Inc. (incorporated herein by reference to registrant’s Registration Statement on Form S-1/A filed July 9, 2001)
| 3.02Exhibit Number
| SEC File No. | Amended and Restated Bylaws of PDF Solutions, Inc. (incorporated herein by reference to registrant’s Quarterly Report on Form 8-K filed May 1, 2019)
| 4.01
| | Specimen Stock Certificate (incorporated herein by reference to registrant’s Quarterly Report on Form 10-Q filed September 6, 2001)
| 4.02 | | Stockholder Agreement by and between PDF Solutions, Inc. and Advantest America, Inc. dated July 29, 2020 (incorporated herein by reference to registrant’s Quarterly Report on Form 10-Q filed November 6, 2020 | 10.01
| | Form of Indemnification Agreement between PDF Solutions, Inc. and certain of its executive officers and directors (incorporated herein by reference to registrant’s Registration Statement on Form S-1 filed August 7, 2000)
| 10.02
| | Form of Indemnification Agreement between PDF Solutions, Inc. and certain of its senior executive officers and directors (incorporated herein by reference to the registrant's Annual Report on Form 10-K filed March 16, 2009)*
| 10.03
| | PDF Solutions, Inc. 2001 Employee Stock Purchase Plan (incorporated herein by reference to registrant’s proxy statement dated April 6, 2010)*
|
10.04
| | PDF Solutions Inc. Six Amended and Restated 2011 Stock Incentive Plan (incorporated herein by reference to Appendix A to the registrant’s proxy statement dated May 8, 2020)*
| 10.05
| | Form of Stock Option Agreement (Non-statutory) under PDF Solutions, Inc. 2011 Stock Incentive Plan (incorporated herein by reference to registrant's Annual Report on Form 10-K filed March 15, 2012)*
| 10.06
| | Form of Stock Unit Agreement under PDF Solutions, Inc. 2011 Stock Incentive Plan (incorporated herein by reference to registrant's Annual Report on Form 10-K filed March 15, 2012)*
| 10.07
| | Form of Stock Appreciation Right Agreement under PDF Solutions, Inc. 2011 Stock Incentive Plan (incorporated herein by reference to registrant’s filing on Form 10-Q filed November 9, 2012)*
| 10.08
| | Employment confirmation to John Kibarian from PDF Solutions, Inc. dated October 13, 2009 (incorporated herein by reference to registrant's Annual Report on Form 10-K filed March 15, 2012)*
| 10.09
| | Employment confirmation to Kimon Michaels from PDF Solutions, Inc. dated October 13, 2009 (incorporated herein by reference to registrant's Annual Report on Form 10-K filed March 15, 2012)*
| 10.10 | | Employment offer to Adnan Raza, dated January 23, 2020(incorporated herein by reference to registrant’s filing on Form 10-K filed on March 10, 2020)* | 10.11 | | Software License and Related Services Agreement by and between PDF Solutions, Inc. and Advantest America, Inc. dated March 25, 2020 and Amendment No.1 thereto dated July 29, 2020 (incorporated herein by reference to registrant’s Quarterly Report on Form 10-Q filed November 6, 2020)+ | 10.12 | | Amended and Restated Master Development Agreement by and between PDF Solutions, Inc. and Advantest America, Inc. dated July 29, 2020 (incorporated herein by reference to registrant’s Quarterly Report on Form 10-Q filed November 6, 2020)+ | 10.13 | | Master Commercial Terms and Support Services Agreement by and between PDF Solutions, Inc. and Advantest America, Inc. dated July 29, 2020 (incorporated herein by reference to registrant’s Quarterly Report on Form 10-Q filed November 6, 2020)+ | 10.14 | | Securities Purchase Agreement by and between PDF Solutions, Inc. and Advantest America, Inc. dated July 29, 2020 (incorporated herein by reference to registrant’s Quarterly Report on Form 10-Q filed November 6, 2020)+. | 21.01
| | Subsidiaries of Registrant †
| 23.01
| | Consent of BPM LLP, Independent Registered Public Accounting Firm†Provided Herewith
| 31.01 | | Certifications of the principal executive officer and principal financial and accounting officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†2002 | | | | | X | 31.02 | | Certifications of the principal executive officer and principal financial and accounting officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†2002 | | | | | X | 32.01 | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**2002† | | | | | X | 32.02 | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**2002† | | | | | X | 97.01 | Compensation Recovery Policy | | | | | X | 101 | | The following financial statements from the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2020,2023, formatted in Inline XBRL: (i) Consolidated Balance Sheets as of December 31, 20202023 and 2019,2022, (ii) Consolidated Statements of Comprehensive LossIncome (Loss) for the Years Ended December 31, 20202023, 2022 and 2019,2021, (iii) Consolidated Statements of Changes in Stockholders'Stockholders’ Equity for the Years Ended December 31, 20202023, 2022 and 2019,2021, (iv) Consolidated Statements of Cash Flows for the Years Ended December 31, 20202023, 2022 and 2019,2021, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | | | | | X |
| | Incorporated by Reference | | | Exhibit Number | Exhibit Description | Form | Filing Date | Exhibit Number | SEC File No. | Provided Herewith | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | |
* | Indicates management contract or compensatory plan or arrangement. | † | Filed herewith.
| **
| Furnished, and not filed. | + | Certain portions of this document that constitute confidential information have been redacted in accordance with Regulation S-K, Item 601(b)(10). |
Item 16. Form 10-K Summary Not applicable. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. | | | | | | | By: | /s/ John K. Kibarian | | | | John K. Kibarian | | | | President and Chief Executive Officer | | | | (Principal executive officer) | |
| | | | | | | | | By: | /s/ John K. Kibarian Adnan Raza | | | | John K. KibarianAdnan Raza
| | | | Executive Vice President, Finance and Chief ExecutiveFinancial Officer | | | | (Principal executivefinancial and accounting officer) | |
| | | | | By:
| /s/ Adnan Raza
| | | | Adnan Raza
| | | | Executive Vice President, Finance and Chief Financial Officer
| | | | (Principal financial and accounting officer)
| |
Date March 11, 2021Date: February 27, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | | | | | Date | | Signature | | Title | | | | | | | | March 11, 2021February 27, 2024
| | /s/ JOHN K. KIBARIAN | | Director, President and Chief Executive Officer | | | | John K. Kibarian | | (Principal executive officer) | | | | | | | | March 11, 2021February 27, 2024
| | /s/ ADNAN RAZA | | Executive Vice President, Finance and Chief Financial Officer | | | | Adnan Raza | | Officer | | | | | (Principal financial and accounting officer) | | | | | | | | March 11, 2021February 27, 2024
| | /s/ JOSEPH R. BRONSON | | Lead Independent Director | | | | Joseph R. Bronson | | | | | | | | | February 27, 2024 | | s/ CHI-FOON CHAN | | Director | | | Chi-Foon Chan | | | March 11, 2021
| | | | | February 27, 2024 | | /s/ NANCY ERBA | | Director | | | | Nancy Erba | | | | | | | | | | March 11, 2021February 27, 2024
| | /s/ MICHAEL B. GUSTAFSON | | Director | | | | Michael Gustafson | | | | | | | | | | March 11, 2021February 27, 2024
| | s/ MARCO IANSITIYE JANE LI | | Director | | | | Marco Iansiti
| Ye Jane Li | | | | | | | | | March 11, 2021February 27, 2024
| | s/ KIMON MICHAELS | | Director | | | | Kimon Michaels | | | | | | | | | | March 11, 2021
| | s/ GERALD Z. YIN
| | Director
| | | | Gerald Z. Yin | | | | | | | | | | March 11, 2021February 27, 2024
| | s/ SHUO ZHANG | | Director | | | | Shuo Zhang | | | |
|
|