PDFS PDF Solutions Inc

PDF Solutions, Inc. (Nasdaq: PDFS), a leading provider of comprehensive data solutions for the semiconductor ecosystem, today announced financial results for its third quarter ended September 30, 2023.

Financial Highlights of Third Quarter 2023

• Record quarterly revenues of $42.4 million, up 6% over last year’s comparable quarter
• Analytics revenues of $39.5 million, up 20% over last year’s comparable quarter
• GAAP gross margin of 66% and Non-GAAP gross margin of 70%
• GAAP diluted loss per share of ($0.13) and non-GAAP diluted earnings per share of $0.20
• Cash, cash equivalents and short-term investments of $135.4 million

Total revenues for the third quarter of 2023 were $42.4 million, compared to $41.6 million for the second quarter of 2023 and $39.9 million for the third quarter of 2022. Analytics revenue for the third quarter of 2023 was $39.5 million, compared to $37.1 million for the second quarter of 2023 and $32.9 million for the third quarter of 2022. Integrated Yield Ramp revenue for the third quarter of 2023 was $2.9 million, compared to $4.5 million for the second quarter of 2023 and $7.0 million for the third quarter of 2022.

GAAP gross margin for the third quarter of 2023 was 66%, compared to 70% for the second quarter of 2023 and 69% for the third quarter of 2022.

Non-GAAP gross margin for the third quarter of 2023 was 70%, compared to 74% for the second quarter of 2023 and 72% for the third quarter of 2022.

On a GAAP basis, net loss for the third quarter of 2023 was $5.0 million, or ($0.13) per diluted share, compared to a net income of $6.8 million, or $0.17 per diluted share, for the second quarter of 2023, and a net income of $1.4 million, or $0.04 per diluted share, for the third quarter of 2022.

Non-GAAP net income for the third quarter of 2023 was $8.0 million, or $0.20 per diluted share, compared to a non-GAAP net income of $7.5 million, or $0.19 per diluted share, for the second quarter of 2023, and non-GAAP net income of $7.6 million, or $0.20 per diluted share, for the third quarter of 2022.

Cash, cash equivalents and short-term investments as of September 30, 2023 were $135.4 million.

Recent Events and Financial Outlook

“We are thankful to Intel, GF, Analog Devices, Renesas, Advantest, STMicroelectronics, Multibeam, SAP, and others, for their presentations at our Users Conference in October,” said John Kibarian, CEO and President.

The Company continues to expect that its 2023 revenue growth rate will be in the lower double digits on a year-over-year percentage basis.

Conference Call

As previously announced, PDF Solutions will discuss these results on a live conference call beginning at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time today. To participate on the live call, analysts and investors should pre-register at: https://register.vevent.com/register/BI972cdaef0a1543a1b43de39379d86f0c. Registrants will receive dial-in information and a unique passcode to access the call. We encourage participants to dial-in into the call ten minutes ahead of scheduled time. The teleconference will also be webcast simultaneously on the Company’s website at https://ir.pdf.com/webcasts. A replay of the conference call webcast will be available after the call on the Company’s investor relations website. A copy of this press release, including the disclosure and reconciliation of certain non-GAAP financial measures to the comparable GAAP measures, which non-GAAP measures may be used periodically by PDF Solutions’ management when discussing financial results with investors and analysts, will also be available on PDF Solutions’ website at http://www.pdf.com/press-releases following the date of this release.

Third Quarter 2023 Financial Commentary Available Online

A Management Report reviewing the Company’s third quarter 2023 financial results will be furnished to the Securities and Exchange Commission on Form 8-K and published on the Company’s website at http://ir.pdf.com/financial-reports. Analysts and investors are encouraged to review this commentary prior to participating in the conference call.

Information Regarding Use of Non-GAAP Financial MeasuresIn addition to providing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), PDF Solutions also provides certain non-GAAP financial measures. Non-GAAP gross profit and margin exclude stock-based compensation expense and the amortization of acquired technology. Non-GAAP net income excludes the effects of certain non-recurring items, expenses related to an arbitration proceeding for a disputed contract with a customer, stock-based compensation expense, amortization of acquired technology and other acquired intangible assets, acquisition-related costs, proceeds from sale of previously written-off property and equipment and their related income tax effects, as applicable, as well as adjustments for the valuation allowance for deferred tax assets. These non-GAAP financial measures are used by management internally to measure the Company’s profitability and performance. PDF Solutions’ management believes that these non-GAAP measures provide useful supplemental information to investors regarding the Company’s ongoing operations in light of the fact that none of these categories of expense has a current effect on the future uses of cash (with the exception of expenses related to an arbitration proceeding for a disputed contract with a customer and acquisition-related costs) nor do they impact the generation of current or future revenues. These non-GAAP results should not be considered an alternative to, or a substitute for, GAAP financial information, and may differ from similarly titled non-GAAP measures used by other companies. In particular, these non-GAAP financial measures are not a substitute for GAAP measures of income or loss as a measure of performance, or to cash flows from operating, investing and financing activities as a measure of liquidity. Since management uses these non-GAAP financial measures internally to measure profitability and performance, PDF Solutions has included these non-GAAP measures to give investors an opportunity to see the Company’s financial results as viewed by management. A reconciliation of the comparable GAAP financial measures to the non-GAAP financial measures is provided at the end of the Company’s condensed consolidated financial statements presented below.

Forward-Looking StatementsThe press release and the planned conference call include forward-looking statements regarding the Company’s future expected business performance and financial results, including expectations about total revenue growth for 2023, that are subject to future events and circumstances. Actual results could differ materially from those expressed in these forward-looking statements. Risks and uncertainties that could cause results to differ materially include, but are not limited to, risks associated with: expectations about the effectiveness of our business and technology strategies; expectations regarding recent and future acquisitions; current semiconductor industry trends; expectations of continued adoption of the Company’s solutions by new and existing customers; project milestones or delays and performance criteria achieved; cost and schedule of new product development; the impact of global economic trends and rising inflation and interest rates; the provision of technology and services prior to the execution of a final contract; supply chain disruptions; the success of the Company’s strategic growth opportunities and partnerships; the Company’s ability to successfully integrate acquired businesses and technologies; whether the Company can successfully convert backlog into revenue; customers’ production volumes under contracts that provide Gainshare royalties; possible impacts from the evolving trade regulatory environment and geopolitical tensions; our ability to obtain additional financing if needed; and other risks set forth in PDF Solutions’ periodic public filings with the Securities and Exchange Commission, including, without limitation, its Annual Report on Form 10-K for the year ended December 31, 2022, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K and amendments to such reports. The forward-looking statements made in the conference call are made as of the date hereof, and PDF Solutions does not assume any obligation to update such statements nor the reasons why actual results could differ materially from those projected in such statements.

About PDF SolutionsPDF Solutions (NASDAQ: PDFS) provides comprehensive data solutions designed to empower organizations across the semiconductor ecosystem to improve the yield and quality of their products and operational efficiency for increased profitability. The Company’s products and services are used by Fortune 500 companies across the semiconductor ecosystem to achieve smart manufacturing goals by connecting and controlling equipment, collecting data generated during manufacturing and test operations, and performing advanced analytics and machine learning to enable profitable, high-volume manufacturing.

Founded in 1991, PDF Solutions is headquartered in Santa Clara, California, with operations across North America, Europe, and Asia. The Company (directly or through one or more subsidiaries) is an active member of SEMI, INEMI, TPCA, IPC, the OPC Foundation, and DMDII. For the latest news and information about PDF Solutions or to find office locations, visit https://www.pdf.com.

PDF Solutions and the PDF Solutions logo are trademarks or registered trademarks of PDF Solutions, Inc. or its subsidiaries.

PDF SOLUTIONS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)(In thousands)

	September 30,				December 31,
	2023				2022
ASSETS
Current assets:
Cash and cash equivalents	$	111,620			$	119,624
Short-term investments		23,744				19,557
Accounts receivable, net		40,959				42,164
Prepaid expenses and other current assets		18,001				12,063
Total current assets		194,324				193,408
Property and equipment, net		37,833				40,174
Operating lease right-of-use assets, net		5,069				6,002
Goodwill		15,008				14,123
Intangible assets, net		16,486				18,055
Deferred tax assets, net		32				64
Other non-current assets		13,701				6,845
Total assets	$	282,453			$	278,671
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,633			$	6,388
Accrued compensation and related benefits		11,502				16,948
Accrued and other current liabilities		4,772				5,581
Operating lease liabilities ‒ current portion		1,504				1,412
Deferred revenues ‒ current portion		29,267				26,019
Billings in excess of recognized revenues		240				1,852
Total current liabilities		49,918				58,200
Long-term income taxes payable		2,820				2,622
Non-current operating lease liabilities		4,922				5,932
Other non-current liabilities		3,229				1,905
Total liabilities		60,889				68,659
Stockholders’ equity:
Common stock and additional paid-in-capital		467,310				447,421
Treasury stock at cost		(143,587	)			(133,709	)
Accumulated deficit		(98,932	)			(101,150	)
Accumulated other comprehensive loss		(3,227	)			(2,550	)
Total stockholders’ equity		221,564				210,012
Total liabilities and stockholders’ equity	$	282,453			$	278,671

PDF SOLUTIONS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)(In thousands, except per share amounts)

	Three months ended												Nine months ended
	September 30,				June 30,				September 30,				September 30,				September 30,
	2023				2023				2022				2023				2022
Revenues:
Analytics	$	39,497			$	37,134			$	32,879			$	112,957			$	94,422
Integrated yield ramp		2,853				4,467				6,981				11,753				13,604
Total revenues		42,350				41,601				39,860				124,710				108,026
Costs and Expenses:
Costs of revenues		14,282				12,369				12,545				38,555				36,116
Research and development		13,113				12,264				14,303				38,428				41,766
Selling, general, and administrative		15,611				14,766				12,005				46,022				32,614
Amortization of acquired intangible assets		328				326				318				979				946
Interest and other expense (income), net		(2,018	)			(1,071	)			(1,511	)			(4,000	)			(2,812	)
Income (loss) before income tax benefit (expense)		1,034				2,947				2,200				4,726				(604	)
Income tax benefit (expense)		(6,006	)			3,888				(815	)			(2,508	)			(3,308	)
Net income (loss)	$	(4,972	)		$	6,835			$	1,385			$	2,218			$	(3,912	)
Net income (loss) per share:
Basic	$	(0.13	)		$	0.18			$	0.04			$	0.06			$	(0.10	)
Diluted	$	(0.13	)		$	0.17			$	0.04			$	0.06			$	(0.10	)
Weighted average common shares used to calculate net income (loss) per share:
Basic		38,187				37,859				37,226				37,930				37,285
Diluted		38,187				39,076				38,054				38,977				37,285

PDF SOLUTIONS, INC.RECONCILIATION OF GAAP GROSS MARGIN TO NON-GAAP GROSS MARGIN (UNAUDITED)(In thousands)

	Three months ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2023			2023			2022			2023			2022
GAAP
Total revenues	$	42,350		$	41,601		$	39,860		$	124,710		$	108,026
Costs of revenues		14,282			12,369			12,545			38,555			36,116
GAAP gross profit	$	28,068		$	29,232		$	27,315		$	86,155		$	71,910
GAAP gross margin		66	%		70	%		69	%		69	%		67	%
Non-GAAP
GAAP gross profit	$	28,068		$	29,232		$	27,315		$	86,155		$	71,910
Adjustments to reconcile GAAP to non-GAAP gross margin:
Stock-based compensation expense		1,120			938			854			3,022			2,237
Amortization of acquired technology		574			553			553			1,680			1,660
Non-GAAP gross profit	$	29,762		$	30,723		$	28,722		$	90,857		$	75,807
Non-GAAP gross margin		70	%		74	%		72	%		73	%		70	%

PDF SOLUTIONS, INC.RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME (UNAUDITED)(In thousands, except per share amounts)

	Three months ended												Nine months ended
	September 30,				June 30,				September 30,				September 30,				September 30,
	2023				2023				2022				2023				2022
GAAP net income (loss)	$	(4,972	)		$	6,835			$	1,385			$	2,218			$	(3,912	)
Adjustments to reconcile GAAP net income (loss) to non-GAAP net income:
Stock-based compensation expense		5,999				4,678				5,136				15,561				14,561
Amortization of acquired technology under costs of revenues		574				553				553				1,680				1,660
Amortization of other acquired intangible assets		328				326				318				979				945
Expenses of arbitration (1)		226				166				556				2,525				1,043
Acquisition-related costs (2)		33				176				—				209				—
Proceeds from sale of previously written-off property and equipment		(105	)			—				—				(105	)			—
Tax impact of valuation allowance for deferred tax assets and reconciling items (3)		5,904				(5,238	)			(373	)			(314	)			1,228
Non-GAAP net income	$	7,987			$	7,496			$	7,575			$	22,753			$	15,525
GAAP net income (loss) per diluted share	$	(0.13	)		$	0.17			$	0.04			$	0.06			$	(0.10	)
Non-GAAP net income per diluted share	$	0.20			$	0.19			$	0.20			$	0.58			$	0.41
Weighted average common shares used in GAAP net income (loss) per diluted share calculation		38,187				39,076				38,054				38,977				37,285
Weighted average common shares used in non-GAAP net income per diluted share calculation		38,992				39,076				38,054				38,977				38,082

_____________________

(1)	Represents expenses related to an arbitration proceeding over a disputed customer contract, which expenses are expected to continue until the arbitration is resolved.
(2)	Acquisition-related costs are incremental expenses related to business or asset acquisition transaction(s). These expenses may include consulting, legal and other fees. For the three and nine months ended September 30, 2023, the charges were related to the acquisition of Lantern Machinery Analytics, Inc.
(3)	The difference between the GAAP and non-GAAP income tax provisions is primarily due to the valuation allowance on a GAAP basis and non-GAAP adjustments. For example, on a GAAP basis, the Company does not receive a deferred tax benefit for foreign tax credits or research and development credits after the valuation allowance. The Company’s non-GAAP tax rate and resulting non-GAAP tax expense is not calculated with a full U.S. federal or state valuation allowance due to the Company’s cumulative non-GAAP income and management’s conclusion that it is more likely than not to utilize its net deferred tax assets (DTAs). Each reporting period, management evaluates the need for a valuation allowance and may place a valuation allowance against its U.S. net DTAs on a non-GAAP basis if it concludes it is more likely than not that it will not be able to utilize some or all of its U.S. DTAs on a non-GAAP basis.

Company Contacts:
Adnan Raza	Sonia Segovia
Chief Financial Officer	Investor Relations
Tel: (408) 516-0237	Tel: (408) 938-6491
Email: adnan.raza@pdf.com	Email: sonia.segovia@pdf.com