Exhibit 99.1 NEWS RELEASE Investor Relations Contact: Corporate Communications Contact: Sonia Segovia, IR Coordinator Abbie Kendall, Principal PDF Solutions, Inc. Armstrong Kendall, Inc. Tel: (408) 938-6491 Tel: (503) 672-4681 Email: sonia.segovia@pdf.com Email: abbie@akipr.com PDF SOLUTIONS(R) REPORTS RECORD THIRD QUARTER REVENUE Results Represent 7th Sequential Quarter of Revenue Growth SAN JOSE, Calif. -- October 21, 2004 -- PDF Solutions, Inc. (Nasdaq: PDFS) the leading provider of process-design integration technologies to enhance IC manufacturability, today announced financial results for its third fiscal quarter ended September 30, 2004. Revenue for the third fiscal quarter of 2004 totaled a record $16.5 million, an increase of 46%, compared with revenue of $11.3 million for the third fiscal quarter of 2003. On a GAAP basis, net income for the third fiscal quarter of 2004 totaled approximately $135,000, or $0.01 per diluted share, compared with a net loss of approximately $1.2 million, or $0.05 per diluted share, for the third fiscal quarter of 2003. In addition to using GAAP results in evaluating PDF's business, management also believes it useful to measure results using a non-GAAP measure of net income or loss, which excludes amortization of stock-based compensation and acquired intangible assets and the write-off of in-process research and development resulting from the acquisition of IDS Software Systems, Inc. in September 2003. Using this non-GAAP measure, net income for the third fiscal quarter of 2004 totaled $1.5 million, or $0.06 per diluted share, compared with non-GAAP net income of approximately $332,000, or $0.01 per diluted share, for the third fiscal quarter of 2003. -more- As previously announced, PDF will hold a live conference call beginning at 3:00 p.m. Pacific Time/6:00 p.m. Eastern Time today to discuss these quarterly results. A live webcast of this conference call will be available on PDF's website at http://ir.pdf.com/medialist.cfm. A replay of the call will be available at the same website address beginning approximately two hours after completion of the live call. Further, a copy of this press release, including the disclosure and reconciliation of certain non-GAAP financial measures to the most directly comparable GAAP measure, which non-GAAP measures may be used periodically by PDF's management when discussing financial results with investors and analysts, will be available on PDF's website at http://www.pdf.com/news_archive.phtml following the date of this release. ABOUT PDF SOLUTIONS PDF Solutions, Inc. (Nasdaq: PDFS) is the leading provider of process-design integration technologies for manufacturing integrated circuits (ICs). PDF's software, methodologies and services enable semiconductor companies to create IC designs that can be more easily manufactured using manufacturing processes that are more capable. By simulating deep sub-micron product and process interactions, the PDF solution offers clients reduced time to market, increased IC yield and performance, and enhanced product reliability and profitability. Headquartered in San Jose, Calif., PDF Solutions operates worldwide with additional offices in Europe and Japan. For more information, visit www.pdf.com. PDF Solutions(R) is a registered trademark of PDF Solutions, Inc. -more- PDF SOLUTIONS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS) SEPTEMBER 30, DECEMBER 31, 2004 2003 ------------- ----------- ASSETS Current assets: Cash and cash equivalents ...................................... $ 42,939 $ 39,110 Accounts receivable, net of allowances ......................... 15,468 11,869 Prepaid expenses and other current assets ...................... 2,653 2,614 Deferred tax assets ............................................ 1,433 1,808 --------- --------- Total current assets ...................................... 62,493 55,401 Property and equipment, net ....................................... 3,444 4,110 Goodwill .......................................................... 40,590 40,548 Intangible assets, net ............................................ 17,292 22,906 Other assets ...................................................... 798 1,002 --------- --------- Total assets ............................................... $ 124,617 $ 123,967 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................................... $ 1,594 $ 835 Accrued compensation and related benefits ...................... 2,970 1,952 Other accrued liabilities ...................................... 2,310 1,485 Other acquisition obligations .................................. 552 1,880 Taxes payable .................................................. 3,285 2,871 Deferred revenue ............................................... 3,346 3,300 Billings in excess of recognized revenue ....................... 2,807 465 --------- --------- Total current liabilities .................................. 16,864 12,788 Long term liabilities ............................................. 310 287 Deferred tax liabilities .......................................... 2,584 4,340 --------- --------- Total liabilities .......................................... 19,758 17,415 --------- --------- Stockholders' equity Common stock ................................................. 4 4 Additional paid-in-capital ................................... 131,910 129,568 Treasury stock ............................................... (4,806) -- Deferred stock-based compensation ............................ (209) (688) Notes receivable from stockholders ........................... (550) (3,025) Accumulated deficit .......................................... (21,530) (19,361) Accumulated other comprehensive income ....................... 40 54 --------- --------- Total stockholders' equity ................................. 104,859 106,552 --------- --------- Total liabilities and stockholders' equity ................. $ 124,617 $ 123,967 ========= ========= -more- PDF SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------- ---------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Revenue: Design-to-silicon-yield solutions .............................. $ 14,036 $ 9,033 $ 39,244 $ 25,175 Gain share ..................................................... 2,414 2,267 5,051 5,282 -------- -------- -------- -------- Total revenue ................................................ 16,450 11,300 44,295 30,457 -------- -------- -------- -------- Cost and expenses: Cost of design-to-silicon-yield solutions: Direct costs of design-to-silicon-yield solutions: ................................................ 5,887 3,768 15,610 10,726 Amortization of acquired core technology ................... 1,266 652 3,943 818 Research and development ....................................... 4,940 4,421 14,980 13,123 Selling, general and administrative ............................ 3,801 3,106 11,220 8,720 Stock-based compensation amortization* ......................... 134 366 681 1,344 Amortization of other acquired intangible assets ............... 351 137 1,172 137 Write-off of in-process research and development ............... -- 800 -- 800 -------- -------- -------- -------- Total costs and expenses ................................... 16,379 13,250 47,606 35,668 -------- -------- -------- -------- Income (loss) from operations ..................................... 71 (1,950) (3,311) (5,211) Interest and other income ......................................... 150 278 441 998 -------- -------- -------- -------- Income (loss) before taxes ........................................ 221 (1,672) (2,870) (4,213) Tax (benefit) provision ........................................... 86 (441) (702) (972) -------- -------- -------- -------- Net income (loss) ................................................. $ 135 $ (1,231) $ (2,168) $ (3,241) ======== ======== ======== ======== Net income (loss) per share: Basic .......................................................... $ 0.01 $ (0.05) $ (0.09) $ (0.14) ======== ======== ======== ======== Diluted ........................................................ $ 0.01 $ (0.05) $ (0.09) $ (0.14) ======== ======== ======== ======== Weighted average common shares: Basic .......................................................... 25,293 23,002 25,310 22,701 ======== ======== ======== ======== Diluted ........................................................ 25,983 23,002 25,310 22,701 ======== ======== ======== ======== * Stock-based compensation amortization: Cost of design-to-silicon yield solutions ..................... $ 2 $ 77 $ 39 $ 293 Research and development ...................................... 130 222 606 785 Selling, general and administrative ........................... 2 67 36 266 -------- -------- -------- -------- $ 134 $ 366 $ 681 $ 1,344 ======== ======== ======== ======== -more- PDF SOLUTIONS, INC. RECONCILIATION OF REPORTED GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED ---------------------------- SEPTEMBER 30, SEPTEMBER 30, 2004 2003 ------------- ------------- GAAP net income (loss) .................................. $ 135 $ (1,231) Stock-based compensation amortization ................... 134 366 Amortization of intangibles, net of taxes ............... 1,226 397 Write-off of in-process research and development ........ -- 800 -------- -------- Non-GAAP net income ..................................... $ 1,495 $ 332 ======== ======== Non-GAAP net income per share - diluted ................. $ 0.06 $ 0.01 ======== ======== Weighted average common shares - diluted ................ 25,983 24,383 ======== ======== USE OF NON-GAAP INFORMATION In addition to providing results that are determined in accordance with Generally Accepted Accounting Principles (GAAP), PDF also provides certain Non-GAAP financial measures that exclude certain charges as additional information relating to its operating results. PDF's management believes that the presentation of these measures provides useful information to investors regarding certain additional financial and business trends relating to its financial condition and results of operations. PDF has also chosen to provide this information to investors to enable them to perform meaningful comparisons of PDF's past, present and future operating results. These measures are not in accordance with, or an alternative to, GAAP and may be different from non-GAAP measures used by other companies. The calculations of non-GAAP financial measures have been adjusted to exclude the effects of amortization of stock-based compensation and intangibles and the write-off of in-process research and development. -###-