NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim unaudited condensed consolidated financial statements included herein have been prepared by PDF Solutions, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), including the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The interim unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary (consisting only of normal recurring adjustments) to present a fair statement of results for the interim periods presented. The operating results for any interim period are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all intercompany balances and transactions.
The condensed consolidated balance sheet at December 31, 2020, has been derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include revenue recognition, assumptions made in analysis of allowance for doubtful accounts, impairment of goodwill and long-lived assets, realization of deferred tax assets (DTAs), and accounting for lease obligations, stock-based compensation expense, and income taxes. Actual results could differ from those estimates.
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 its affiliates. The Company believes the lack of an ability to meet in person in most of 2020 through the first quarter of 2021 may have made it harder for us to sell complex or new technologies to new customers during 2020 and 2021. Once the Company can again begin to meet with customers in person, it may improve traction with 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, including spikes in different regions from time to time, has a substantial impact on the productivity of the Company’s employees, or supplies, 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 condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial statements.
Recent Accounting Standards
Accounting Standards Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, related to simplifying the accounting for income taxes. The guidance eliminates certain exceptions from ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also clarifies and simplifies other aspects of the accounting for income taxes. The guidance is effective for the Company beginning in the first quarter of 2021 on a prospective basis. The Company adopted this standard on January 1, 2021, and it did not have a material impact on the Company's condensed 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 (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 adopted this standard on January 1, 2021, and it did not have a material impact on the Company's condensed consolidated financial statements or the related disclosures.
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model, which will result in earlier recognition of credit losses. Subsequent to the issuance of ASU No. 2016-13, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instrument, ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326) Targeted Transition Relief, ASU No. 2016-13, ASU No. 2019-10 Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and ASU No. 2019-11 Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The subsequent ASUs do not change the core principle of the guidance in ASU No. 2016-13. Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU No. 2016-13.
Additionally, ASU No. 2019-10 defers the effective date for the adoption of the new standard on credit losses for public filers that are considered small reporting companies (“SRC”) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which will be fiscal 2023 for the Company if it continues to be classified as 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 a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. While the Company is currently evaluating the impact of Topic 326, the Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements or the related disclosure.
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-20): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. Additionally, the ASU will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. The ASU will be effective for annual reporting periods beginning after December 15, 2023 for SRCs and interim periods within those annual periods. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its condensed consolidated financial statements or the related disclosures.
Management has reviewed other recently issued accounting pronouncements issued or proposed by the FASB, and does not believe any of these accounting pronouncements has had or will have a material impact on the condensed consolidated financial statements.
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company derives revenue from two sources: Analytics revenue and Integrated Yield Ramp revenue.
The Company recognizes revenue in accordance with FASB Accounting 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:
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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
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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 standalone selling price.
Analytics Revenue
Analytics revenue is derived from the following primary offerings: licenses and services for standalone Software (which is primarily Exensio and Cimetrix products), SaaS (which is primarily Exensio products), and DFI™ and CV® systems that do not include performance incentives based on customers’ yield achievement.
Revenue from standalone Software is recognized depending on whether the license is perpetual or time-based. Perpetual (one-time charge) license software is recognized at the time of the inception of the arrangement when control transfers to the customers, if the software license is considered as a separate performance obligation from the services offered by the Company. Revenue from post-contract support is recognized over the contract term on a straight-line basis, because we are providing (i) support and (ii) unspecified software updates on a when-and-if available basis over the contract term. Revenue from time-based-licensed software is allocated to each performance obligation and is recognized either at a point in time or over time as follows. The license component is recognized at the time when control transfers to customers, with the post-contract support component recognized ratably over the committed term of the contract. For contracts with any combination of licenses, support, and other services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using standalone selling price (or SSP) attributed to each performance obligation.
Revenue from SaaS arrangements, which allow for the use of a cloud-based software product or service over a contractually determined period of time without the customer having to take possession of software, is accounted for as a subscription and is recognized as revenue ratably, on a straight-line basis, over the subscription period beginning on the date the service is first made available to customers. For contracts with any combination of SaaS and related services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation.
Revenue from DFI™ and CV® systems that do not include performance incentives based on customers’ yield achievement is recognized primarily as services are performed. Where there are distinct performance obligations, the Company allocates revenue to all deliverables based on their SSPs. For these contracts with multiple performance obligations, the Company 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. Please refer to “Significant Judgements” section of this Note for further discussion.
Integrated Yield Ramp Revenue
Integrated Yield Ramp revenue is derived from the Company’s fixed-fee engagements that include performance incentives based on customers’ yield achievement (which consists primarily of Gainshare royalties) typically based on customer’s wafer shipments, pertaining to these fixed-price contracts, which royalties are variable.
Revenue under these project–based contracts, which are delivered over a specific period of time, typically for a fixed fee component paid on a set schedule, is recognized as services are performed using a percentage of completion method based on costs or labor-inputs, whichever is the most appropriate measure of the progress towards completion of the contract. Where there are distinct performance obligations, the Company allocates revenue to all deliverables based on their SSPs and allocates the transaction price of the contract to each performance obligation on a relative basis using SSP. Similar to the services provided in connection with DFI™ and CV® systems that are contributing to Analytics revenue, due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex and subject to many variables that require significant judgement. Please refer to “Significant Judgments” section of this Note for further discussion.
The Gainshare royalty contained in IYR contracts is a variable fee related to continued usage of the Company’s intellectual property after the fixed-fee service period ends, based on a customer’s yield achievement. Revenue derived from Gainshare is contingent upon the Company’s customers reaching certain defined production yield levels. Gainshare royalty periods are generally subsequent to the delivery of all contractual services and performance obligations. The Company records Gainshare as a usage-based royalty derived from customers’ usage of intellectual property and records it in the same period in which the usage occurs.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers into the timing of the transfer of goods and services and the geographical regions. The Company determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
The Company’s performance obligations are satisfied either over time or at a point-in-time. The following table represents a disaggregation of revenue by timing of revenue:
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Three Months Ended March 31,
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2021
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2020
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Over time
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50
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%
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58
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%
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Point-in-time
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50
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%
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42
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%
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Total
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|
100
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%
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|
|
100
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%
|
International revenues accounted for approximately 65% of our total revenues during the three months ended March 31, 2021 compared to 59% of our total revenues during the three months ended March 31, 2020. See Note 11, Customer and Geographic Information.
Significant Judgments
Judgments and estimates are required under ASC 606. Due to the complexity of certain contracts, the actual revenue recognition treatment required under ASC 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.
For revenue under project-based contracts for fixed-price implementation services, revenue is recognized as services are performed using a percentage-of-completion method based on costs or labor-hours input method, whichever is the most appropriate measure of the progress towards completion of the contract. Due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex, subject to many variables and requires significant judgment. Key factors reviewed by the Company to estimate costs to complete each contract are future labor and product costs and expected productivity efficiencies. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in revenue on a cumulative catch-up basis in the period in which the circumstances that gave rise to the revision become known.
The Company’s contracts with customers often include promises to transfer products, licenses software and provide services, including professional services, technical support services, and rights to unspecified updates to a customer. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or
not distinct and thus accounted for together, requires significant judgment. The Company rarely licenses software on a standalone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where SSP is
not directly observable because the Company does
not license the software or sell the service separately, the Company determines the SSP using information that
may include market conditions and other observable inputs.
The Company is required to record Gainshare royalty revenue in the same period in which the usage occurs. Because the Company generally does
not receive the acknowledgment reports from its customers during a given quarter within the time frame necessary to adequately review the reports and include the actual amounts in quarterly results for such quarter, the Company accrues the related revenue based on estimates of customers underlying sales achievement. The Company’s estimation process can be based on historical data, trends, seasonality, changes in the contract rate, knowledge of the changes in the industry and changes in the customer’s manufacturing environment learned through discussions with customers and sales personnel. As a result of accruing revenue for the quarter based on such estimates, adjustments will be required in the following quarter to true-up revenue to the actual amounts reported.
Contract Balances
The Company performs its obligations under a contract with a customer by licensing software or providing services in exchange for consideration from the customer. The timing of the Company’s performance often differs from the timing of the customer’s payment, which results in the recognition of a receivable, a contract asset or a contract liability.
The Company classifies the right to consideration in exchange for software or services transferred to a customer as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional, as compared to a contract asset, which is a right to consideration that is conditional upon factors other than the passage of time. The majority of the Company’s contract assets represent unbilled amounts related to fixed-price service contracts when the revenue recognized exceeds the amount billed to the customer. The contract assets are generally classified as current and are recorded on a net basis with deferred revenue (i.e. contract liabilities) at the contract level. At March 31, 2021 and December 31, 2020, contract assets of $0.4 million and $3.7 million, respectively, are included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. The Company did not record any asset impairment charges related to contract assets for the periods presented.
Deferred revenues consist substantially of amounts invoiced in advance of revenue recognition and are recognized as the revenue recognition criteria are met. Deferred revenues that will be recognized during the succeeding twelve-month period are recorded as current deferred revenues and the remaining portion is recorded in the other non-current liabilities in the Condensed Consolidated Balance Sheets. At March 31, 2021 and December 31, 2020, the non-current portion of deferred revenues included in non-current liabilities was $1.6 million and $1.2 million, respectively. Revenue recognized during the three months ended March 31, 2021 and 2020, that was included in the deferred revenues and billings in excess of recognized revenues balances at the beginning of each reporting period was $6.3 million and $4.6 million, respectively.
At March 31, 2021, 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 $114.2 million. Given the applicable contract terms with customers, the majority of this amount is expected to be recognized as revenue over the next two years, with the remainder in the following three years. This amount does not include insignificant contracts to which the customer is not committed, nor significant contracts for which we recognize revenue equal to the amount we have the right to invoice for services performed, or future sales-based or usage-based royalty payments in exchange for a license of intellectual property. This amount is subject to change due to future revaluations of variable consideration, terminations, other contract modifications, or currency adjustments. The estimated timing of the recognition of remaining unsatisfied performance 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 three months ended March 31, 2021 and 2020 from performance obligations satisfied (or partially satisfied) in previous periods were increases of $0.3 million and $0.7 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 Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 was $0.8 million. Total capitalized direct sales commission costs included in other non-current assets in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 were $1.1 million and $0.9 million, respectively. Amortization of these assets during the three months ended March 31, 2021 and 2020 were $0.2 million and $0.1 million, 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. The deferred costs balance included in prepaid expenses and other current assets and in other non-current assets in the accompanying Condensed Consolidated Balance Sheets was immaterial as of as of March 31, 2021 and December 31, 2020.The Company recognizes impairment of deferred costs when it has 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.
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 during the three months ended March 31, 2021 and 2020.
3. STRATEGIC PARTNERSHIP AGREEMENT WITH ADVANTEST AND RELATED PARTY TRANSACTIONS
On July 29, 2020, the Company entered into a long-term strategic partnership with Advantest Corporation through its wholly-owned subsidiary, Advantest America, Inc. (collectively referred to herein as “Advantest”) that included the following agreements.
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A Securities Purchase Agreement for the purchase by Advantest of an aggregate of 3,306,924 shares of the Company’s common stock for aggregate gross proceeds of $65.2 million and a related Stockholder Agreement.
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An Amendment #1 to that certain Software License and Related Services Agreement, dated as of March 25, 2020, for an exclusive commercial arrangement in which the Company and Advantest will collaborate on, and the Company will initially host, develop and maintain, an Advantest-specific cloud layer on the Exensio platform. Analytics revenue recognized from Advantest under this agreement during the three months ended March 31, 2021 was $2.6 million. Accounts receivable from Advantest, comprised of billed and unbilled accounts receivable, related to this agreement amounted to $0.1 million, and deferred revenue amounted to $2.2 million as of March 31, 2021.
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An Amended and Restated Master Development Agreement with Advantest, pursuant to which the Company and Advantest agreed to collaborate on extensions to or combinations of both of their existing technology and new technology to address mutual customers’ needs through one or more development phases subject to certain conditions as set forth therein. Costs and expenses incurred related to this agreement have not been significant for the three months ended March 31, 2021.
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A Master Commercial Terms and Support Services Agreement for the commercialization and support of integrated products of the Company and Advantest that are the outcome of the above development agreement. No costs and expenses were incurred related to the Commercial Agreement with Advantest during the three months ended March 31, 2021.
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There was no occurrence of any termination events under these agreements as of the issuance of these condensed consolidated financial statements.
The Company carries out transactions with Advantest on arm’s length commercial customary terms. For more information about these agreements with Advantest, see Note 3, Strategic Partnership Agreement with Advantest and Related Party Transactions, of Part II, Item 8. “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
4. BUSINESS COMBINATION
On December 1, 2020 (the “Acquisition Date”), the Company acquired all the stock of Cimetrix Incorporated (“Cimetrix”). Total payment made for this acquisition in 2020 amounted to $28.6 million, net of cash acquired, and was funded from the available cash of the Company. In 2020, 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. During the three months ended March 31, 2021, the Company recorded a measurement period adjustment as described below which reduced the Holdback Amount to $3.0 million. This reduction was released from the restricted cash on the Company’s Consolidated Condensed Balance Sheet. 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” account in the Condensed Consolidated Balance Sheets.
The Company is required to maintain cash specifically designated to pay for the Holdback Amount, which the Company has classified as restricted cash. Restricted cash amounted to $3.0 million and $3.5 million as of March 31, 2021 and December 31, 2020, respectively, and is included in the “Prepaid expenses and other current assets” account in the Company’s Consolidated Condensed Balance Sheet.
The Company is still finalizing the allocation of the purchase price to the individual assets acquired. Accordingly, the estimates set forth below are preliminary and are subject to change during the measurement period, which is not to exceed one year from the acquisition date. During the measurement period, 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. During the three months ended March 31, 2021, the Company recorded a measurement period adjustment to the estimated fair values initially recorded in 2020, which resulted in a reduction in Holdback Amount of $0.5 million with a corresponding change to goodwill. The measurement period adjustment did not have an impact on the Company's Condensed Consolidated Statements of Comprehensive Loss during the three months ended March 31, 2021. As of March 31, 2021, the allocation of the purchase price for this acquisition is as follows (in thousands, except amortization period):
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Amount
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Amortization Period (Years)
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|
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Assets
|
|
|
|
|
|
|
|
|
|
Fair value of tangible assets (including cash of $5,900)
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|
$
|
8,403
|
|
|
|
|
|
|
Fair value of intangible assets:
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|
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|
Developed technology
|
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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
|
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|
13,012
|
|
|
|
N/A
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|
|
Total assets acquired
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$
|
41,214
|
|
|
|
|
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|
Liabilities
|
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|
|
|
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|
Accounts payable and accrued expenses
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|
$
|
1,437
|
|
|
|
|
|
|
Deferred revenue
|
|
|
391
|
|
|
|
|
|
|
Operating lease liabilities
|
|
|
132
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
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1,743
|
|
|
|
|
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Total liabilities assumed
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$
|
3,703
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|
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Total purchase price allocation
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$
|
37,511
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|
Pursuant to the merger agreement, the Company will also pay approximately $1.4 million to certain employees, subject to their continued employment with Cimetrix or the Company, at various scheduled payout dates through the second quarter of 2024. This amount will be recognized as compensation expense over the period as services are rendered. As of March 31, 2021, estimated remaining total cash payout is approximately $1.0 million. The accrued compensation balance included under “Accrued compensation and related benefits” account in the Condensed Consolidated Balance Sheet was $0.2 million and $0.3 million as of March 31, 2021 and December 31, 2020, respectively.
Transaction expenses related to the acquisition of Cimetrix amounted to $1.6 million in 2020. These costs consist of professional fees and administrative costs and were expensed as incurred in the Company’s Consolidated Statement of Comprehensive Loss. Transaction costs incurred during the three months ended March 31, 2021 were immaterial.
The financial results of the acquisition of Cimetrix were considered immaterial for purposes of unaudited pro forma financial disclosures.
5. BALANCE SHEET COMPONENTS
Accounts receivable
Accounts receivable include amounts that are unbilled at the end of the period that are expected to be billed and collected within a 12-month period. Unbilled accounts receivable, included in accounts receivable, totaled $10.5 million and $7.2 million as of March 31, 2021, and December 31, 2020, respectively. Unbilled accounts receivable that are not expected to be billed and collected during the succeeding 12-month period are recorded in other non-current assets and totaled $1.8 million and $2.0 million as of March 31, 2021, and December 31, 2020, respectively.
Property and equipment
Property and equipment, net consist of the following (in thousands):
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March 31,
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December 31,
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2021
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|
2020
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Computer equipment
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|
$
|
11,595
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|
|
$
|
11,585
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|
Software
|
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|
5,435
|
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|
5,451
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Furniture, fixtures and equipment
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2,501
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|
|
|
2,507
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|
|
Leasehold improvements
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|
6,255
|
|
|
|
6,255
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Laboratory and other equipment
|
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3,571
|
|
|
|
3,451
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Test equipment
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|
|
25,977
|
|
|
|
26,010
|
|
|
Construction-in-progress
|
|
|
20,699
|
|
|
|
20,278
|
|
|
|
|
|
76,033
|
|
|
|
75,537
|
|
|
Less: accumulated depreciation and amortization
|
|
|
(37,886
|
)
|
|
|
(36,295
|
)
|
|
Total
|
|
$
|
38,147
|
|
|
$
|
39,242
|
|
Test equipment includes DFI™ assets at customer sites that are contributing to DFI™ revenues. The construction-in-progress balance related to construction of DFI™ assets totaled $19.3 million and $18.9 million as of March 31, 2021 and December 31, 2020, respectively. Depreciation and amortization expense during the three months ended March 31, 2021 and 2020 was $1.7 million for each period.
Goodwill and Intangible Assets, Net
The change in the carrying amount of goodwill during the three months ended March 31, 2021 was as follows (in thousands):
|
|
|
March 31,
|
|
|
|
|
2021
|
|
|
Balance at beginning of period
|
|
$
|
15,774
|
|
|
Measurement period acquisition adjustment (1)
|
|
|
(469
|
)
|
|
Balance at end of period
|
|
$
|
15,305
|
|
_________________________
|
|
(1)
|
Goodwill adjustment was recorded within the measurement period with a corresponding reduction in the Holdback Amount. See Note 4, Business Combination.
|
There were no impairments to goodwill during the three months ended March 31, 2021.
Intangible assets, net, consisted of the following (in thousands):
|
|
|
|
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
|
Amortization
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
|
|
Period
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Acquired identifiable intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
1 ‒ 10
|
|
|
$
|
9,407
|
|
|
$
|
(5,558
|
)
|
|
$
|
3,849
|
|
|
$
|
9,407
|
|
|
$
|
(5,398
|
)
|
|
$
|
4,009
|
|
|
Developed technology
|
|
4 ‒ 9
|
|
|
|
30,000
|
|
|
|
(15,570
|
)
|
|
|
14,430
|
|
|
|
30,000
|
|
|
|
(14,987
|
)
|
|
|
15,013
|
|
|
Tradename and trademarks
|
|
2 ‒ 10
|
|
|
|
1,598
|
|
|
|
(732
|
)
|
|
|
866
|
|
|
|
1,598
|
|
|
|
(706
|
)
|
|
|
892
|
|
|
Patent
|
|
7 ‒ 10
|
|
|
|
1,800
|
|
|
|
(1,610
|
)
|
|
|
190
|
|
|
|
1,800
|
|
|
|
(1,600
|
)
|
|
|
200
|
|
|
Noncompetition agreements
|
|
3
|
|
|
|
848
|
|
|
|
(94
|
)
|
|
|
754
|
|
|
|
848
|
|
|
|
(24
|
)
|
|
|
824
|
|
|
In-process R&D
|
|
*
|
|
|
|
3,635
|
|
|
|
—
|
|
|
|
3,635
|
|
|
|
3,635
|
|
|
|
—
|
|
|
|
3,635
|
|
|
Total
|
|
|
|
|
$
|
47,288
|
|
|
$
|
(23,564
|
)
|
|
$
|
23,724
|
|
|
$
|
47,288
|
|
|
$
|
(22,715
|
)
|
|
$
|
24,573
|
|
_________________________________
* Non-amortizing intangible asset
The Company expects annual amortization of acquired identifiable intangible assets to be as follows (in thousands):
|
Year Ending December 31,
|
|
Amount
|
|
|
2021 (remaining nine months)
|
|
$
|
2,372
|
|
|
2022
|
|
|
3,013
|
|
|
2023
|
|
|
2,990
|
|
|
2024
|
|
|
2,592
|
|
|
2025
|
|
|
2,427
|
|
|
2026 and thereafter
|
|
|
6,695
|
|
|
Total future amortization expense
|
|
$
|
20,089
|
|
Intangible assets are amortized over their useful lives unless these lives are determined to be indefinite. The weighted average amortization period for acquired identifiable intangible assets was 6.1 years as of March 31, 2021. Intangible asset amortization expense during the three months ended March 31, 2021 and 2020 was $0.8 million and $0.3 million, respectively, and included under "Cost of revenues" and "Amortization of other intangible assets" account in the Condensed Consolidated Statements of Comprehensive Loss. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. During the three months ended March 31, 2021, there were no indicators of impairment related to the Company’s intangible assets.
6. LEASES
The Company leases administrative and sales offices and certain equipment under non-cancellable operating leases, which contain various renewal options and, in some cases, require payment of common area costs, taxes and utilities. These operating leases expire at various dates through 2028. The Company had no leases that were classified as a financing lease as of March 31, 2021 and December 31, 2020.
Lease expense was comprised of the following (in thousands):
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Operating lease expense
|
|
$
|
485
|
|
|
$
|
455
|
|
|
Short-term lease and variable lease expense (1)
|
|
|
174
|
|
|
|
147
|
|
|
Total lease expense
|
|
$
|
659
|
|
|
$
|
602
|
|
__________________________
|
|
(1)
|
Leases with an initial term of 12 months or less are not recorded on the balance sheets, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease expense for the periods presented primarily included common area maintenance charges.
|
Supplemental balance sheet information related to operating leases was as follows:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Weighted average remaining lease term under operating ROU leases (in years)
|
|
|
6.3
|
|
|
|
6.4
|
|
|
Weighted average discount rate for operating lease liabilities
|
|
|
5.24
|
%
|
|
|
5.24
|
%
|
|
Operating lease ROU assets obtained (in thousands)
|
|
$
|
—
|
|
|
$
|
286
|
|
Maturities of operating lease liabilities as of March 31, 2021 were as follows (in thousands):
|
Year Ending December 31,
|
|
Amount (1)
|
|
|
2021 (remaining nine months)
|
|
$
|
1,453
|
|
|
2022
|
|
|
1,699
|
|
|
2023
|
|
|
1,385
|
|
|
2024
|
|
|
1,074
|
|
|
2025
|
|
|
1,089
|
|
|
2026 and thereafter
|
|
|
2,703
|
|
|
Total future minimum lease payments
|
|
$
|
9,403
|
|
|
Less: Interest (2)
|
|
|
(1,510
|
)
|
|
Present value of future minimum lease payments under operating lease liabilities (3)
|
|
$
|
7,893
|
|
|
|
(1)
|
As of March 31, 2021, the total operating lease liability includes approximately $1.1 million related to an option to extend a lease term that is reasonably certain to be exercised.
|
|
|
(2)
|
Calculated using incremental borrowing interest rate for each lease.
|
|
|
(3)
|
Includes the current portion of operating lease liabilities of $1.7 million as of March 31, 2021.
|
7. 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.
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. Through May 28, 2020, approximately 786,000 shares had been repurchased at an average price of $12.43 per share, for a total price of $9.8 million under the 2018 Program.
On June 4, 2020, the Company’s Board of Directors adopted a new stock repurchase program (the “2020 Program”) to repurchase up to $25.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, over the next two years. During the three months ended March 31, 2021, 251,212 shares were repurchased under the 2020 Program at an average price of $18.01 per share for an aggregate total price of $4.5 million.
8. EMPLOYEE BENEFIT PLANS
On March 31, 2021, the Company had the following stock-based compensation plans:
Employee Stock Purchase Plan
In July 2001, the Company adopted a ten-year Employee Stock Purchase Plan (as amended, the “Purchase Plan”) under which 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 Purchase Plan provided for twenty-four-month offering periods with four six-month purchase periods in each offering period. The Company’s proposal at its annual meeting of stockholders in 2020 to extend the 2010 Purchase Plan through June 22, 2030 was not approved by the Company’s stockholders and consequently, the Purchase Plan expired on May 17, 2020. After the Purchase Plan expired, no new offering periods will commence 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 final offering period under the Purchase Plan is expected to expire on January 31, 2022.
The Company estimated the fair value of purchase rights granted under the Purchase Plan during the period using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions, resulting in the following weighted average fair values:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Expected life (in years)
|
|
|
1.25
|
|
|
|
1.25
|
|
|
Volatility
|
|
|
34.25
|
%
|
|
|
34.25
|
%
|
|
Risk-free interest rate
|
|
|
1.43
|
%
|
|
|
1.43
|
%
|
|
Expected dividend
|
|
|
—
|
|
|
|
—
|
|
|
Weighted average fair value of purchase rights granted during the period
|
|
$
|
4.83
|
|
|
$
|
4.83
|
|
During the three months ended March 31, 2021 and 2020, a total of approximately 99,674 and 89,000 shares, respectively issued under the Purchase Plan, were issued at a weighted-average purchase price of $9.24 per share and $9.02 per share, respectively. As of March 31, 2021, there was $0.1 million of unrecognized compensation cost related to the Purchase Plan. That cost is expected to be recognized over a weighted average period of 0.7 year.
Stock Incentive Plans
On November 16, 2011, the Company’s stockholders initially approved the 2011 Stock Incentive Plan, which has been amended and restated and approved by the Company’s stockholders a number of times since then (as amended, the “2011 Plan”). Under the 2011 Plan, the Company may award stock options, stock appreciation rights (“SARs”), stock grants or stock units covering shares of the Company’s common stock to employees, directors, non-employee directors and contractors. The aggregate number of shares reserved for awards under this plan is 11,550,000 shares, plus up to 3,500,000 shares previously issued under the 2001 Stock Plan adopted by the Company in 2001, which expired in 2011 (the “2001 Plan”) that are either (i) forfeited or (ii) repurchased by the Company or are shares subject to awards previously issued under the 2001 Plan that expire or that terminate without having been exercised or settled in full on or after November 16, 2011. In case of awards other than options or SARs, the aggregate number of shares reserved under the 2011 Plan will be decreased at a rate of 1.33 shares issued pursuant to such awards. The exercise price for stock options must generally be at prices no less than the fair market value at the date of grant. Stock options generally expire ten years from the date of grant and become vested and exercisable over a four-year period.
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 March 31, 2021, 12.1 million shares of common stock were reserved to cover stock-based awards under the 2011 Plan, of which 4.2 million shares were available for future grant. The number of shares reserved and available under the 2011 Plan includes 0.5 million shares that were subject to awards previously made under the 2001 Plan and were forfeited, expired or repurchased by the Company after the adoption of the 2011 Plan through March 31, 2021. As of March 31, 2021, there were no outstanding awards that had been granted outside of the 2011 or 2001 Plans (collectively, the “Stock Plans”).
The Company estimated the fair value of share-based awards granted under the 2011 Stock Plan during the period using the Black-Scholes-Merton option-pricing model. There were no stock options granted during the three months ended March 31, 2021. The fair value of stock options granted during the three months ended March 31, 2020, was estimated as of the grant-date using the following assumptions:
|
|
|
Three Months Ended
|
|
|
|
|
March 31, 2020
|
|
|
Expected life (in years)
|
|
|
4.45
|
|
|
Volatility
|
|
|
38.77
|
%
|
|
Risk-free interest rate
|
|
|
0.88
|
%
|
|
Expected dividend
|
|
|
—
|
|
|
Weighted average fair value per share of options granted during the period
|
|
$
|
5.21
|
|
Stock-Based Compensation
Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally four years. Stock-based compensation expense before taxes related to the Company’s stock plans and employee stock purchase plan was allocated as follows (in thousands):
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Costs of revenues
|
|
$
|
652
|
|
|
$
|
909
|
|
|
Research and development
|
|
|
1,588
|
|
|
|
1,455
|
|
|
Selling, general and administrative
|
|
|
1,129
|
|
|
|
1,004
|
|
|
Stock-based compensation expenses (1)
|
|
$
|
3,369
|
|
|
$
|
3,368
|
|
____________________
|
|
(1)
|
The stock-based compensation expense during the three months ended March 31, 2020 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. All remaining outstanding SARs were fully exercised in the third quarter of 2020.
|
Stock-based compensation expense that was recorded as capitalized software development costs under property and equipment, net, was nil and $0.1 million during the three months ended March 31, 2021 and 2020, respectively.
Additional information with respect to options under the Stock Plans during the three months ended March 31, 2021, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Options
|
|
|
Price per
|
|
|
Term
|
|
|
Value
|
|
|
|
|
(in thousands)
|
|
|
Share
|
|
|
(years)
|
|
|
(in thousands)
|
|
|
Outstanding, January 1, 2021
|
|
|
456
|
|
|
$
|
10.95
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(81
|
)
|
|
|
6.97
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2021
|
|
|
375
|
|
|
$
|
11.81
|
|
|
|
3.41
|
|
|
$
|
2,309
|
|
|
Vested and expected to vest, March 31, 2021
|
|
|
369
|
|
|
$
|
11.76
|
|
|
|
3.33
|
|
|
$
|
2,293
|
|
|
Exercisable, March 31, 2021
|
|
|
307
|
|
|
$
|
11.14
|
|
|
|
2.30
|
|
|
$
|
2,104
|
|
The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of $17.78 per share as of March 31, 2021. The total intrinsic value of options exercised during the three months ended March 31, 2021, was $1.0 million.
As of March 31, 2021, there was $0.3 million of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of 2.4 years. The total fair value of shares vested during the three months ended March 31, 2021, was $39 thousand.
Non-vested restricted stock unit activity during the three months ended March 31, 2021 was as follows:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
|
|
|
(in thousands)
|
|
|
Per Share
|
|
|
Non-vested, January 1, 2021
|
|
|
1,747
|
|
|
$
|
16.33
|
|
|
Granted
|
|
|
141
|
|
|
$
|
19.84
|
|
|
Vested
|
|
|
(223
|
)
|
|
$
|
17.32
|
|
|
Forfeited
|
|
|
(23
|
)
|
|
$
|
15.88
|
|
|
Non-vested, March 31, 2021
|
|
|
1,642
|
|
|
$
|
16.51
|
|
As of March 31, 2021, there was $21.2 million of total unrecognized compensation cost related to non-vested restricted stock units. That cost is expected to be recognized over a weighted average period of 2.4 years. Restricted stock units do not have rights to dividends prior to vesting.
9. INCOME TAXES
Income tax benefit decreased $4.4 million for the three months ended March 31, 2021, to a $1.0 million income tax expense as compared to an income tax benefit of $3.5 million for the three months ended March 31, 2020. The Company’s effective tax rate benefit was (14%) and 86% for the three months ended March 31, 2021 and 2020, respectively. The Company’s effective tax rate benefit decreased in the three months ended March 31, 2021, as compared to the same period in 2020, primarily due to a full valuation allowance against U.S. net deferred tax assets as well as a one-time benefits in the first quarter of 2020 pursuant to the provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) passed on March 27, 2020.
The Company’s total amount of unrecognized tax benefits, excluding interest and penalties, as of March 31, 2021, was $14.5 million, of which $2.2 million, if recognized, would affect the Company’s effective tax rate. The Company’s total amount of unrecognized tax benefits, excluding interest and penalties, as of December 31, 2020, was $14.3 million, of which $2.2 million, if recognized, would affect the Company’s effective tax rate. As of March 31, 2021, the Company has recorded unrecognized tax benefits of $3.0 million, including interest and penalties of $0.8 million, as long-term taxes payable in its Condensed Consolidated Balance Sheet. The remaining $12.3 million has been recorded net of our DTAs which is subject to a full valuation allowance.
The valuation allowance was approximately $41.9 million as of March 31, 2021, and December 31, 2020, which was related to U.S. net federal and state DTAs.
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 tax years ending 2017 to present and 2016 to present, respectively. In addition, due to NOL carryback claims, the tax years 2013 through 2015 may be subject to federal examination and all of the net operating loss and research and development credit carryforwards that may be utilized in future years may be subject to federal and state examination. The Company is not subject to income tax examinations in any other of its major foreign subsidiaries’ jurisdictions.
On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the ongoing COVID-19 pandemic. The American Rescue Plan includes, among other things, provisions relating to Paycheck Protection Program (PPP) loan expansion, defined pension contributions, excessive employee remuneration, and the repeal of the election to allocate interest expense on a worldwide basis. Under ASC 740, the effects of new legislation are recognized upon enactment. Accordingly, the American Rescue Plan is effective beginning in the quarter that includes March 11, 2021. Such provisions did not have a material impact on the Company’s condensed consolidated financial statements.
10. NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss by weighted average number of common shares outstanding for the period (excluding outstanding stock options and shares subject to repurchase). Diluted net 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. The following is a reconciliation of the numerators and denominators used in computing basic and diluted net loss per share (in thousands except per share amount):
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,597
|
)
|
|
$
|
(528
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
36,974
|
|
|
|
32,703
|
|
|
Effect of dilutive options and restricted stock units
|
|
|
—
|
|
|
|
—
|
|
|
Diluted weighted-average shares outstanding
|
|
|
36,974
|
|
|
|
32,703
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.21
|
)
|
|
$
|
(0.02
|
)
|
For the three months ended March 31, 2021 and 2020, 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 were not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Outstanding options
|
|
|
224
|
|
|
|
400
|
|
|
Non-vested restricted stock units
|
|
|
1,107
|
|
|
|
716
|
|
|
Employee Stock Purchase Plan
|
|
|
10
|
|
|
|
100
|
|
|
Total
|
|
|
1,341
|
|
|
|
1,216
|
|
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.
The Company had revenues from individual customers in excess of 10% of total revenues as follows:
|
|
|
Three Months Ended March 31,
|
|
|
Customer
|
|
2021
|
|
|
2020
|
|
|
A
|
|
|
13
|
%
|
|
|
26
|
%
|
|
B
|
|
|
11
|
%
|
|
|
*
|
%
|
__________________________
* represents less than 10%
The Company had gross accounts receivable from individual customers in excess of 10% of gross accounts receivable as follows:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
Customer
|
|
2021
|
|
|
2020
|
|
|
A
|
|
|
*
|
%
|
|
|
16
|
%
|
|
B
|
|
|
11
|
%
|
|
|
11
|
%
|
__________________________
* represents less than 10%
Revenues from customers by geographic area based on the location of the customers’ work sites are as follows (amounts in thousands):
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
Revenues
|
|
|
of Revenues
|
|
|
Revenues
|
|
|
of Revenues
|
|
|
United States
|
|
$
|
8,556
|
|
|
|
35
|
%
|
|
$
|
8,617
|
|
|
|
41
|
%
|
|
Japan
|
|
|
3,578
|
|
|
|
15
|
|
|
|
1,207
|
|
|
|
6
|
|
|
Taiwan
|
|
|
2,052
|
|
|
|
8
|
|
|
|
2,668
|
|
|
|
12
|
|
|
China
|
|
|
1,739
|
|
|
|
7
|
|
|
|
2,959
|
|
|
|
14
|
|
|
Rest of the world
|
|
|
8,275
|
|
|
|
35
|
|
|
|
5,707
|
|
|
|
27
|
|
|
Total revenue
|
|
$
|
24,200
|
|
|
|
100
|
%
|
|
$
|
21,158
|
|
|
|
100
|
%
|
Long-lived assets, net by geographic area are as follows (in thousands):
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
United States
|
|
$
|
42,417
|
|
|
$
|
43,663
|
|
|
Rest of the world
|
|
|
1,901
|
|
|
|
2,251
|
|
|
Total long-lived assets, net
|
|
$
|
44,318
|
|
|
$
|
45,914
|
|
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 value drivers are unobservable.
|
The following table represents the Company’s assets measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020, and the basis for those measurements (in thousands):
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
March 31,
|
|
|
|
Assets
|
|
|
|
Inputs
|
|
|
|
Inputs
|
|
|
Assets
|
|
2021
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
$
|
63,017
|
|
|
$
|
63,017
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments (available-for-sale debt securities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bills
|
|
|
57,999
|
|
|
|
57,999
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
121,016
|
|
|
$
|
121,016
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
December 31,
|
|
|
|
Assets
|
|
|
|
Inputs
|
|
|
|
Inputs
|
|
|
Assets
|
|
2020
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
$
|
18,012
|
|
|
$
|
18,012
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments (available-for-sale debt securities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bills
|
|
|
114,981
|
|
|
|
114,981
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
132,993
|
|
|
$
|
132,993
|
|
|
$
|
—
|
|
|
$
|
—
|
|
As of March 31, 2021 and December 31, 2020, the amortized cost of the Company’s cash equivalents and short-term investments approximated their fair value due to their short-term maturities, and there have been no events or changes in circumstances that would have had a significant effect on the fair value of these securities in the periods presented. There were no material realized or unrealized gains or losses, either individually or in the aggregate.
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, 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 is recorded into earnings as a component of other expense (income), net, and offsets the change in fair value of the foreign currency denominated assets and liabilities, which is also recorded in other expense (income), net in the Company’s Condensed Consolidated Statements of Comprehensive Loss. For the three months ended March 31, 2021, there was no realized gain or loss from foreign currency forward contracts. For the three months ended March 31, 2020, the Company recognized a realized loss of $0.3 million from foreign currency forward contracts.
The Company carries these derivatives financial instruments on its Condensed Consolidated Balance Sheets at their fair values. The Company’s foreign currency forward contracts are classified as Level 2 because they are not actively traded and the valuation inputs are based on quoted prices and market observable data of similar instruments. As of March 31, 2021 and December 31, 2020, the Company had no outstanding forward contracts.
13. COMMITMENTS AND CONTINGENCIES
Strategic Partnership with Advantest — See Note 4, Business Combination, for the discussion about the Company’s commitments under the strategic partnership with Advantest.
Operating Leases — Refer to Note 6, 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 initial delivery of its products. The Company also indemnifies certain customers from third-party claims of intellectual property 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 — The Company has purchase obligations with certain suppliers for the purchase of goods and services entered in the ordinary course of business. As of March 31, 2021, total outstanding purchase obligations were $10.6 million, the majority of which due within the next 24 months.
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.
Legal Proceedings — From time to time, the Company is subject to various claims and legal proceedings that arise in the ordinary course of business. The Company accrues for losses related to litigation when a potential loss is probable and the loss can be reasonably estimated in accordance with FASB requirements. As of March 31, 2021, the Company was not party to any material legal proceedings, thus no loss was probable and no 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 PDF 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, and costs associated with bringing the arbitration proceeding. The arbitration is on-going.