What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-01 · 147 added, 140 removed, 786 unchanged (27% of the section changed)

26 unchanged sentences

Contracts with customers can include various combinations of licenses, subscriptions, products and services, some of which are distinct and are accounted for as separate performance obligations.

Significant judgment is exercised by the Company in determining revenue recognition for customer agreements, including determining whether licenses, subscriptions, and services are distinct performance obligations, determining the standalone selling price (or SSP) attributed to each performance obligation, establishing the pattern of delivery for each distinct performance

obligation, and estimating variable consideration when determining the amount of revenue to recognize.

In addition, for revenue under project-based contracts for fixed-price services, revenue is recognized as services are performed using a percentage-of-completion (or POC) method based on costs or labor-hours input method.

judgment is exercised by the Company in determining revenue recognition for customer agreements, including determining whether licenses, subscriptions, and services are distinct performance obligations, determining the standalone selling price (“SSP”) attributed to each performance obligation, establishing the pattern of delivery for each distinct performance obligation, and estimating variable consideration when determining the amount of revenue to recognize.

In addition, for revenue under project-based contracts for fixed-price services, revenue is recognized as services are performed using a percentage-of-completion (“POC”) method based on costs or labor-hours input method.

Estimated costs to complete each contract are based on i) future labor and product costs and ii) expected productivity efficiencies.

48 unchanged sentences

Short-term investments

Accounts receivable, net of allowance for doubtful accounts of $ 890 and $ 963 in 2021 and 2020, respectively

Accounts receivable, net

Prepaid expenses and other current assets

15 unchanged sentences

Long-term income taxes payable

Non-current operating lease liabilities

Other non-current liabilities

Non-current portion of operating lease liabilities

Non-current portion of deferred revenues

Total liabilities

25 unchanged sentences

Interest and other expense (income), net

Loss before income taxes

Income (loss) before income taxes

Income tax expense

1 unchanged sentence

Foreign currency translation adjustments, net of tax

Change in unrealized losses related to available-for-sale debt securities, net of tax

Change in unrealized gain (loss) related to available-for-sale debt securities, net of tax

Total other comprehensive income (loss)

26 unchanged sentences

Balances, December 31, 2021

Repurchase of common stock

Issuance of common stock in connection with employee stock purchase plan

Issuance of common stock in connection with exercise of options

Vesting of restricted stock units

Purchases of treasury stock in connection with tax withholdings on restricted stock grants

Stock-based compensation expense

Comprehensive income

Balances, December 31, 2022

See accompanying Notes to Consolidated Financial Statements.

24 unchanged sentences

Cash flows from investing activities:

Proceeds from maturities of short-term investments

Proceeds from maturities and sales of short-term investments

Purchases of short-term investments

1 unchanged sentence

Prepayment for the purchase of property and equipment

Purchases of intangible assets

Payment for business acquisition, net of cash acquired

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

6 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at beginning of year

Cash, cash equivalents, and restricted cash at end of year

Reconciliation of cash, cash equivalents, and restricted cash to the balance sheets:

Net change in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at beginning of period

Cash, cash equivalents, and restricted cash at end of period

Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheet:

Cash and cash equivalents

10 unchanged sentences

Supplemental disclosure of noncash information:

Property and equipment received and accrued in accounts payable and accrued and other liabilities

Property and equipment, and intangible assets received and accrued in accounts payable and accrued and other liabilities

Advances for purchase of fixed assets transferred from prepaid assets to property and equipment

7 unchanged sentences

PDF Solutions, Inc.

(the “Company” or “PDF”), provides products and services designed to empower engineers and data scientists across the semiconductor ecosystem to connect, collect, manage, and analyze data about design, equipment, manufacturing, and test to improve the yield and quality of their products and operational efficiency.

The Company’s products, services, and solutions include proprietary software, physical intellectual property (or IP) for integrated circuit (or IC) designs, electrical measurement hardware tools, proven methodologies, and professional services.

(the “Company” or “PDF”), provides products and services designed to empower organizations across the semiconductor ecosystem to connect, collect, manage, and analyze data about design, equipment, manufacturing, and test to improve the yield and quality of their products and operational efficiency.

The Company’s products, services, and solutions include proprietary software, physical intellectual property (“IP”) for integrated circuit (“IC”) designs, electrical measurement hardware tools, proven methodologies, and professional services.

Basis of Presentation

13 unchanged sentences

The Company primarily sells its products and services to companies in Asia, Europe and North America within the semiconductor industry.

As of December 31, 2021, two customers accounted for 44 % of the Company’s gross accounts receivable and two customers accounted for 27 % of the Company’s total revenues for 2021.

As of December 31, 2020, two customers accounted for 27 % of the Company’s gross accounts receivable and one customer accounted for 23 % of the Company’s revenues for 2020.

As of December 31, 2022, three customers accounted for 53 % of the Company’s gross accounts receivable and two customers accounted for 41 % of the Company’s total revenues for 2022.

As of December 31, 2021, two customers accounted for 44 % of the Company’s gross accounts receivable and two customers accounted for 27 % of the Company’s revenues for 2021.

See Note 13 for further details.

4 unchanged sentences

Such adjustments could be material to the consolidated financial statements.

Cash and Cash Equivalents, Short-term Investments, and Restricted Cash

Cash and Cash Equivalents, and Short-term Investments

The Company considers all highly liquid investments with an original maturity of 90 days or less or investments with a remaining maturity of 90 days or less at the purchase to be cash equivalents and investments with original maturities greater than 90 days but less than one year to be short-term investments.

7 unchanged sentences

Treasury bills.

The cost of these securities approximated fair value and there was no material gross realized or unrealized gains or losses as of December 31, 2021.

There were also no impairments in the investments’ value in the year ended December 31, 2021.

The cost of these securities approximated fair value and there was no material gross realized or unrealized gains or losses as of December 31, 2022 and 2021.

There were also no impairments in the investments’ value in the year ended December 31, 2022 and 2021.

Refer to Note 14, “Fair Value Measurements” for further discussion on the Company’s investments.

Restricted cash of $ 3.5 million included in the “Prepaid expenses and other current assets” in the Company’s Consolidated Balance Sheet as of December 31, 2020 pertains to the amount, subject to adjustments, specifically designated to pay for the Holdback amount related to the Company’s acquisition of Cimetrix Incorporated (“Cimetrix”).

Restricted cash of $ 3.5 million noted in the Consolidated Statement of Cash Flows for the year ended December 31, 2020 pertains to the amount specifically designated to pay for the Holdback amount related to the Company’s acquisition of Cimetrix Incorporated (“Cimetrix”).

Refer to Note 4, “Business Combination” for further discussion about the payment of Holdback Amount in fiscal 2021.

1 unchanged sentence

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 is determined on an individual contract basis.

Unbilled accounts receivable are determined on an individual contract basis.

Unbilled accounts receivable, included in accounts receivable, totaled $ 13.5 million and $ 11.8 million as of December 31, 2022 and 2021, respectively.

4 unchanged sentences

Accounts receivable reserves are summarized below (in thousands):

Receivable (1)

(1) Additions to the accounts receivable reserve for doubtful accounts are charged to bad debt expense.

6 unchanged sentences

Leasehold improvements

Shorter of estimated

useful life or term of

Shorter of estimated useful life or term of lease

Intangible Assets

Intangible assets consist of acquired technology, certain contract rights, customer relationships, trademarks and trade names, and in-process research and development (IPR&D).

Intangible assets consist of acquired technology, certain contract rights, customer relationships, patents, trademarks and trade names.

These intangible assets may be acquired through business combinations or direct purchases.

Intangible assets are amortized on a straight-line basis over their estimated useful lives which range from one to ten years , except for IPR&D projects.

Acquired IPR&D is initially accounted for as indefinite-lived intangible asset and tested annually for impairment.

Once the IPR&D asset becomes available for use, it will be amortized over the estimated useful life or will be written off upon abandonment.

Intangible assets are amortized on a straight-line basis over their estimated useful lives which range from one to ten years.

The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets, including property and equipment and intangible assets, may not be recoverable.

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The Company recognizes long-term operating lease rights and commitments as operating lease right-of-use assets (ROU), operating lease liabilities and operating lease liabilities, non-current, respectively, in the Consolidated Balance Sheets.

The Company also elected the transition package of three practical expedients which allow companies not to reassess (i) whether agreements contain leases, (ii) the classification of leases, and (iii) the capitalization of initial direct costs.

Further, the Company elected to not separate lease and non-lease components for all of its leases.

The Company elected to not separate lease and non-lease components for all of its leases.

The Company determines if an arrangement is, or contains, a lease at inception.

1 unchanged sentence

Lease terms include the minimum unconditional term of the lease, and may include options to extend or terminate the lease when it is reasonably certain at the commencement date that such options will be exercised.

The decision to include these options

involves consideration of our overall future business plans and other relevant business economic factors that may affect our business.

The decision to include these options involves consideration of our overall future business plans and other relevant business economic factors that may affect our business.

Since the determination of the lease term requires an application of judgment, lease terms that differ in reality from our initial judgment may potentially have a material impact on the Company’s Consolidated Balance Sheets.

7 unchanged sentences

Cost of Revenues

Costs of revenues consist primarily of costs incurred to provide and support our services, costs recognized in connection with licensing our software, and amortization of acquired technology.

Services costs include material, employee compensation and related benefits, subcontractor costs, overhead costs, travel, and allocated facilities-related costs.

Costs of revenues consist primarily of costs incurred to provide and support our services, costs recognized in connection with licensing our software, IT and facilities-related costs and amortization of acquired technology.

Service costs include material, personnel-related costs including compensation, employee benefits, bonus and stock-based compensation expense, subcontractor costs, overhead costs, travel, and allocated facilities-related costs.

Software license costs consist of costs associated with cloud-delivery related expenses and licensing third-party software used by us in providing services to the Company’s customers in solution engagements or sold in conjunction with the Company’s software products.

Research and Development Expenses

Research and development expenses consist primarily of personnel-related costs to support product development activities, including compensation and benefits, outside development services, travel, facilities cost allocations, and stock-based compensation charges.

Research and development expenses consist primarily of personnel-related costs including compensation, employee benefits, bonus and stock-based compensation expense, outside development services, travel, third-party cloud-services related costs, IT and facilities cost allocations to support product development activities.

Research and development expenses are charged to operations as incurred.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of compensation and benefits for sales, marketing and general and administrative personnel, legal and accounting services, marketing communications, travel and facilities cost allocations, and stock-based compensation charges.

Selling, general and administrative expenses consist primarily of personnel-related costs including compensation, employee benefits, bonus, commission and stock-based compensation expense for sales, marketing and general and administrative personnel, legal, tax and accounting services, marketing communications expenses, third-party cloud-services related costs, travel, IT and facilities cost allocations.

Stock-Based Compensation

6 unchanged sentences

The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options.

The expected life is based on historical experience and on the

terms and conditions of the stock options granted.

The expected life is based on historical experience and on the terms and conditions of the stock options granted.

The interest rate assumption is based upon observed Treasury yield curve rates appropriate for the expected life of the Company’s stock options.

33 unchanged sentences

The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values at the date of the business combination.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as

Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

1 unchanged sentence

Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Allocation of purchase consideration to identifiable assets and liabilities affects the Company’s amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite lived intangible assets, including IPR&D and goodwill, are not amortized but tested annually for impairment.

Allocation of purchase consideration to identifiable assets and liabilities affects the Company’s amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite lived intangible assets, including in-process research and development, and goodwill, are not amortized but tested annually for impairment.

During the measurement period, which is not to exceed one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

3 unchanged sentences

See Note 8, “Commitments and Contingencies”.

Recently Adopted Accounting Standards

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 Accounting Standards Codification (“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 became 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 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 consolidated financial statements or the related disclosures.

Management has reviewed other recently issued accounting pronouncements and has determined there are not any that would have a material impact on the consolidated financial statements.

Accounting Standards Not Yet Effective

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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 an SRC.

The Company will adopt this standard effective the first quarter of 2023.

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.

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 consolidated financial statements or the related disclosure.

The Company is in the process of evaluating the impact of Topic 326 on its consolidated financial statements and the related disclosure but does not believe it will have a material effect.

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 consolidated financial statements.

26 unchanged sentences

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.

For contracts with multiple performance obligations, we

allocate the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation.

Revenue from DFI systems and CV systems (including Characterization services) that do not include performance incentives based on customers’ yield achievement is recognized primarily as services are performed.

21 unchanged sentences

Point-in-time

International revenues accounted for approximately 55 % and 58 % of total revenues for the year ended December 31, 2021 and 2020, respectively.

International revenues accounted for approximately 50 %, 55 % and 58 % of total revenues for the years ended December 31, 2022, 2021 and 2020, respectively.

See Note 13, “Customer and Geographic Information”.

13 unchanged sentences

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.

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.

7 unchanged sentences

contract liabilities) at the contract level.

At December 31, 2021 and 2020, contract assets of $ 0.4 million and $ 3.7 million, respectively, are included in prepaid expenses and other current assets in the Consolidated Balance Sheets.

At December 31, 2022 and 2021, contract assets of $ 3.3 million and $ 0.4 million, respectively, are included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets.

The Company did not record any asset impairment charges related to contract assets during fiscal year 2022 and 2021.

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 as non-current deferred revenues.

The non-current portion of deferred revenue included in other non-current liabilities as of December 31, 2021 and 2020 was $ 2.4 million and $ 1.2 million, respectively.

Revenue recognized for the years ended December 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 $ 16.9 million and $ 10.7 million, respectively.

Deferred revenues and billings in excess of recognized revenues consist substantially of amounts invoiced in advance of revenue recognition and are recognized as the revenue recognition criteria are met.

Deferred revenues that will be

recognized during the succeeding twelve-month period are recorded as current deferred revenues and the remaining portion is recorded as non-current deferred revenues in the accompanying Consolidated Balance Sheets.

Revenue recognized for the years ended December 31, 2022, 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 $ 24.9 million, $ 16.9 million and $ 10.7 million, respectively.

At December 31, 2022, 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 $ 277.7 million.

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The estimated timing of the recognition of remaining unsatisfied performance obligations is subject to change and is affected by changes to the scope, change in timing of delivery of products and services, or contract modifications.

The adjustment to revenue recognized in the years ended December 31, 2021 and 2020 from performance obligations satisfied (or partially satisfied) in previous periods was a decrease of $ 0.4 million and an increase $ 0.1 million, respectively.

The adjustment to revenue recognized in the years ended December 31, 2022, 2021 and 2020 from performance obligations satisfied (or partially satisfied) in previous periods was an increase of $ 0.4 million, a decrease of $ 0.4 million and an increase $ 0.1 million, respectively.

These amounts primarily represent changes in estimated percentage-of-completion based contracts and changes in actual versus estimated Gainshare royalty.

4 unchanged sentences

Total capitalized direct sales commission costs included in other non-current assets in the accompanying Consolidated Balance Sheets as of December 31, 2022 and 2021 was $ 2.1 million and $ 2.1 million, respectively.

Amortization of these assets for each of

the years ended December 31, 2021 and 2020 was $ 0.7 million and $ 0.5 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.

Deferred costs balance included in prepaid expenses and other current assets and other non-current assets in the accompanying Consolidated Balance Sheets was immaterial as of December 31, 2021 and 2020.

The Company recognizes impairment deferred costs when it is determined that the costs no longer have future benefits and are no longer recoverable.

Amortization of these assets for each of the years ended December 31, 2022, 2021 and 2020 was $1.5 million, $ 0.7 million and $ 0.5 million, respectively.

There was no impairment loss in relation to the costs capitalized for the periods presented.

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(collectively referred to herein as “Advantest”) that included the following agreements.

● A Securities Purchase Agreement for the purchase by Advantest of an aggregate of 3,306,924 shares of its common stock for aggregate gross proceeds of $ 65.2 million and a related Stockholder Agreement.

● 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.

● 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.

Company will initially host, develop and maintain, an Advantest-specific cloud layer on the Exensio platform.

On June 5, 2022, the parties amended Amendment #1 to provide another approved DEX Site (as defined therein).

On November 11, 2022, the parties entered into a further amendment to Amendment #1 that provided, effective October 31, 2022:

(i) flexibility for Advantest to spend the remainder of their committed $ 50.0 million over the remainder of the original term on its choice of products and services from a price list, instead of limiting Advantest to the original, fixed bundle of software and services;

(ii) revised exclusivity;

and (iii) the Company with free access/use of certain Advantest software.

● 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 year ended December 31, 2021 and 2020.

Costs and expenses incurred related to this agreement have no t been significant for the year ended December 31, 2022 and 2021.

● 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 material costs and expenses incurred related to the Commercial Agreement with Advantest have no t been significant for the year ended December 31, 2021 and 2020.

Analytics revenue recognized from Advantest during the year ended December 31, 2021 and 2020 was $ 10.6 million and $ 3.4 million, respectively.

There was no outstanding accounts receivable from Advantest at December 31, 2021.

No material costs and expenses incurred related to the Commercial Agreement with Advantest during the years ended December 31, 2022 and 2021.

Analytics revenue recognized from Advantest during the years ended December 31, 2022, 2021 and 2020 was $ 10.3 million, $ 10.6 million and $ 3.4 million, respectively.

Accounts receivable from Advantest amounted to $ 0.3 million at December 31, 2022.

There were no outstanding accounts receivable from Advantest at December 31, 2021.

Deferred revenue amounted to $ 7.1 million and $ 6.8 million as of December 31, 2022 and 2021, respectively.

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At the Acquisition Date, the Company held back $ 3.5 million of the purchase price (the “Holdback Amount”) to satisfy adjustments and claims for indemnity arising out of breaches of certain representations, warranties and covenants, and certain other enumerated items in the merger agreement.

The Holdback Amount was recorded under accrued and other current liabilities account and the corresponding restricted cash was included in the “Prepaid expenses and other current assets” account in the 2020 Consolidated Balance Sheet.

In fiscal 2021, the Company recorded a measurement period adjustment which reduced the Holdback Amount to $ 3.1 million.

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This amount will be recognized as compensation expense over the period as services are rendered.

As of December 31, 2021 and 2020, such accrued compensation recorded under “Accrued compensation and related benefits” in the Consolidated Balance Sheets amounted to $ 0.5 million and $ 0.3 million, respectively.

As of December 31, 2022 and 2021, such accrued compensation recorded under “Accrued compensation and related benefits” in the accompanying Consolidated Balance Sheets amounted to $ 0.2 million and $ 0.5 million, respectively.

Acquisition-Related Transaction Costs – Transaction expenses related to the acquisition of Cimetrix aggregated $ 1.6 million for the year ended December 31, 2020.

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Accumulated depreciation and amortization

Test equipment includes DFI™ assets at customer sites that are contributing to Analytics revenue from DFI systems.

The construction-in-progress balance related to construction of DFI™ assets totaled $ 20.0 million and $ 18.9 million as of December 31, 2021 and 2020 , respectively.

Depreciation and amortization expense for years ended December 31, 2021 and 2020 was $ 6.2 million and $ 6.7 million, respectively.

Test equipment mainly includes DFI™ systems and CV® systems assets at customer sites that are contributing to revenue.

Among assets under construction, the construction-in-progress balance related to construction of DFI™ systems assets amounted to $ 22.2 million and $ 20.0 million as of December 31, 2022, and December 31, 2021, respectively.

Depreciation and amortization expense for years ended December 31, 2022, 2021 and 2020 was $ 5.5 million, $ 6.2 million and $ 6.7 million, respectively.

In 2021, the Company wrote down the value of its property and equipment by $ 3.2 million related to its first-generation of e-beam tools for DFI™ systems wherein carrying values may not be fully recoverable due to lack of market demand and future needs of our customers for these tools.

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Refer to Note 4 for additional information related to the goodwill and intangible assets added from this acquisition.

As of December 31, 2021 and 2020, the carrying amounts of goodwill were $ 14.1 million and $ 15.8 million, respectively.

The following table summarizes goodwill transaction for the year ended December 31, 2021 and 2020 (in thousands):

As of December 31, 2022 and 2021, the carrying amount of goodwill was $ 14.1 million.

The following table summarizes goodwill transaction for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Year Ended December 31,

Balance at beginning of year

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Noncompetition agreements

In-process R&D

Non-amortizing intangible asset

Developed technology includes reclassified In-process R&D asset related to Cimetrix’s Smart Manufacturing Solutions acquired in fiscal 2020 and reclassified in fiscal 2021 upon it becoming available for us.

The weighted average amortization period for acquired identifiable intangible assets was 5.9 years as of December 31, 2022.

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Amortization of acquired intangible assets presented separately under Costs and Expenses

Balance at end of year

Total amortization of acquired intangible assets

The Company expects annual amortization of acquired identifiable intangible assets to be as follows (in thousands):

2 unchanged sentences

Total future amortization expense

There were no impairment charges for goodwill and intangible assets for the year ended December 31, 2021 and 2020.

There were no impairment charges for goodwill and intangible assets for the years ended December 31, 2022, 2021 and 2020.

In 2022, the Company early terminated an office lease contract.

The termination of this lease reduced the Company’s operating lease right-of-use assets and lease liabilities by approximately $ 0.5 million and $ 0.6 million, respectively.

gain from the lease termination of approximately $ 0.1 million was recorded under selling, general and administrative expense in the accompanying Consolidated Statement of Comprehensive Loss for the year ended December 31, 2022.

Lease expense was comprised of the following (in thousands):

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Total lease expense

(1) Net of gain recognized upon lease termination of $ 0.1 million in the year ended December 31, 2022.

(2) Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Variable lease expense for the periods presented primarily included common area maintenance charges.

Supplemental balance sheets information related to leases was as follows:

Supplemental consolidated balance sheets information related to leases was as follows:

Weighted average remaining lease term under operating ROU leases (in years)

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The Company accrues for losses related to litigation when a potential loss is probable, and the loss can be reasonably estimated in accordance with FASB requirements.

As of December 31, 2021, except as disclosed below, the Company was not party to any material legal proceedings, thus no loss was probable and no amount was accrued.

As of December 31, 2022, except as disclosed below, the Company was not party to any material legal proceedings for which a loss was probable or an amount was accrued.

On May 6, 2020, the Company initiated an arbitration proceeding with the Hong Kong International Arbitration Center against SMIC New Technology Research & Development (Shanghai) Corporation (“SMIC”) due to SMIC’s failure to pay fees due to 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.

The Company seeks to recover the unpaid fees, a declaration requiring SMIC to pay fees under the contracts in the future (or a lump sum payment to end the contract), and costs associated with bringing the arbitration proceeding.

SMIC denies liability and an arbitration hearing was held in February 2023.

The decision is expected within approximately three to six months.

STOCKHOLDERS’ EQUITY

2 unchanged sentences

Issuance costs related to this private placement aggregated $ 0.1 million.

See Note 3, Securities Purchase Agreement with Advantest, for further details.

See Note 3, “Strategic Partnership Agreement with Advantest and Related Party Transactions”, for further details.

Stock Repurchase Program

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As of 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 year ended December 31, 2021, 251,212 shares were repurchased under the 2020 at average price of $ 18.01 per share for an aggregate total price of $ 4.5 million under the 2020 Program.

On June 4, 2020, the Company’s Board of Directors adopted a 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 year ended December 31, 2022, the Company repurchased 218,858 shares under the 2020 Program at an average price of $ 26.40 per share for an aggregate total price of $ 5.8 million.

During the year ended December 31, 2021, the Company repurchased 251,212 shares under the 2020 Program at an average price of $ 18.01 per share for an aggregate total price of $ 4.5 million.

In total, 470,070 shares were repurchased under the 2020 Program at an average price of $ 21.91 per share, for an aggregate total price of $ 10.3 million.

On April 11, 2022, the Board of Directors terminated the 2020 Program, and adopted a new program (the “2022 Program”) to repurchase up to $ 35.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, from time to time, over the next two years .

During the year ended December 31, 2022, the Company repurchased 714,600 shares under the 2022 Program at an average price of $ 23.36 per share for an aggregate total price of $ 16.7 million.

EMPLOYEE BENEFIT PLANS

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Existing offering periods under the 2010 Plan continued through the applicable expiration date and the final offering period expired on January 31, 2022.

On June 15, 2021, the Company’s stockholders approved the 2021 Employee Stock Purchase Plan, which has a ten-year term (the “2021 Purchase Plan”).

On June 15, 2021, the Company’s stockholders approved the 2021 Employee Stock Purchase Plan, which has a ten-year term (the “2021 Purchase Plan” and, together with the 2010 Purchase Plan, the “Employee Purchase Plans”).

The terms of 2021 Purchase Plan are substantially similar to those of the 2010 Purchase Plan.

A twenty-four-month offering period under the 2021 Purchase Plan commenced on August 1, 2021.

The Company estimated the fair value of purchase rights granted under the 2021 and 2010 Purchase Plans (collectively, the “Stock Purchase Plans”) 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:

The Company estimated the fair value of purchase rights granted under the Employee Purchase Plans 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:

2021 Purchase Plan

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Weighted average fair value of purchase rights granted during the period

During the year ended December 31, 2021 and 2020, a total of approximately 109,000 and 183,000 shares, respectively, were issued at a weighted-average purchase price of $ 9.53 and $ 9.12 per share, respectively.

As of December 31, 2021, the estimated unrecognized compensation cost related to the 2021 Purchase Plan was $ 1.9 million and there was a negligible amount of unrecognized compensation cost related to the 2010 Purchase Plan.

These estimated unrecognized compensation costs are expected to be recognized over a weighted average period of 1.6 years.

As of December 31, 2021, 1.0 million shares were available for future issuance under the 2021 Purchase Plan, and shares

available for future issuance under the 2010 Purchase Plan was 5.6 million but shares to be issued will be limited only to the final offering period on January 31, 2022.

During the year ended December 31, 2022, a total of 182,083 shares were issued under the 2021 Purchase Plan, at a weighted-average purchase price of $ 16.15 per share.

During the years ended December 31, 2022, 2021 and 2020, a total of 5,203 , 108,623 and 183,078 shares, respectively, were issued under the 2010 Purchase Plan, at a weighted-average purchase price of $ 13.40 per share, $ 9.53 per share and $ 9.12 per share, respectively.

As of December 31, 2022, unrecognized compensation cost related to the 2021 Purchase Plan was $ 1.1 million.

This estimated unrecognized cost is expected to be recognized over a weighted average period of 1.0 year.

There was no unrecognized compensation cost related to the 2010 Purchase Plan as of December 31, 2022.

As of December 31, 2022, 817,917 shares were available for future issuance under the 2021 Purchase Plan.

Stock Incentive Plans

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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.

The aggregate number of shares reserved for awards under the 2011 Plan is 12,800,000 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.

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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 December 31, 2022, 13.3 million shares of common stock were reserved to cover stock-based awards under the 2011 Plan, of which 3.5 million shares were available for future grant.

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The expected life of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees.

The expected life of an award is based on historical experience and on the

terms and conditions of the stock awards granted to employees.

The interest rate assumption is based upon observed Treasury yield curve rates appropriate for the expected life of the Company’s stock options.

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Weighted average fair value per share of options granted during the period

No stock options were granted during the year ended December 31, 2021.

No stock options were granted during the years ended December 31, 2022 and 2021.

Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally four years.

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SARs were fully exercised in the third quarter of 2020.

Stock-based compensation capitalized in the capitalized software development costs included in property and equipment, net, was nil and approximately $ 0.2 million for the years ended December 31, 2021 and 2020, respectively.

Stock-based compensation capitalized in the capitalized software development costs included in property and equipment, net, was nil , nil and approximately $ 0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Additional information with respect to options under the Plans is as follows:

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Granted (weighted average fair value of $5.75 per share)

Outstanding, January 1, 2021

Outstanding, December 31, 2020

Outstanding, December 31, 2021

Outstanding, December 31, 2022

Vested and expected to vest, December 31, 2022

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The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of $ 28.52 as of December 31, 2022, which would have been received by the option holders had all option holders exercised their options as of that date.

The total intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $ 3.0 million and $ 2.2 million, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $ 2.3 million, $ 3.0 million and $ 2.2 million, respectively.

As of December 31, 2022, there was $ 0.1 million of total unrecognized compensation cost, net of forfeitures, related to unvested stock options.

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Nonvested, December 31, 2020

Non-vested, December 31, 2021

Nonvested, December 31, 2021

Nonvested, December 31, 2022

As of December 31, 2022, there was $ 32.7 million of total unrecognized compensation cost related to restricted stock units.

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401(k) Savings Plan

In 1999, the Company established a 401(k) tax-deferred savings plan, whereby eligible employees may elect to defer up to 60 % of their eligible compensation but not to exceed the statutorily prescribed limit to the 401(k) plan.

The 401(k) plan also has a catch-up contribution feature for employees aged 50 or older who can defer up to 100% of their eligible compensation but not to exceed the statutorily prescribed limit to the 401(k) plan.

Company contributions to this plan are discretionary;

no such Company contributions have been made since the inception of this plan.

During the years ended December 31, 2021 and 2020, loss before taxes from U.S.

operations was ($ 19.7 ) million and ($ 18.4 ) million, respectively, and income before taxes from foreign operations was $ 1.4 million and $ 0.3 million, respectively.

The Company sponsors a 401(k) Retirement Savings Plan (the “401(k) Plan”) covering substantially all of its US employees.

The Company’s 401(k) Plan is a defined contribution plan with a 401(k) salary deferral arrangement qualified under appropriate provisions of the Internal Revenue Code (the “Code”) and applicable state laws.

Under the 401(k) Plan, eligible employees may make pre-tax salary or after-tax contributions up to 60 % of annual compensation, as defined by the 401(k) Plan.

In addition, participants who have reached the age of 50 can elect to withhold additional catch-up contributions subject to the Code and the 401(k) Plan limits.

Participants may also contribute amounts representing distributions from other qualified plans (rollovers).

The Company may make discretionary matching contributions.

In fiscal 2022, the Company matches from 50 % to 100 % of each employee’s contribution up to a maximum of 4 % of the employee’s total eligible earnings.

The Company’s matching contributions to the 401(k) Plan aggregated $ 1.6 million for the year ended December 31, 2022.

No discretionary Company contributions have been made to the Plan through December 31, 2021.

During the years ended December 31, 2022, 2021 and 2020, loss before income taxes from U.S.

operations was ($ 1.2 ) million, ($ 19.7 ) million and ($ 18.4 ) million, respectively, and income before income taxes from foreign operations was $ 1.7 million, $ 1.4 million and $ 0.3 million, respectively.

Year Ended December 31,

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Foreign tax, net

Foreign-derived intangible income (FDII) deduction

Change in valuation allowance

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As of December 31, 2022, the Company had Federal and California net operating loss carry-forwards (“NOLs”) of approximately $ 9.9 million and $ 11.2 million, respectively.

Some of the Federal NOLs, acquired as part of a past acquisition, have expirations at the end of 2021 and onwards, and the California NOLs begin expiring in 2028 onwards.

Some of the Federal NOLs, acquired as part of a past acquisition, have expirations at the end of this fiscal year and onwards, and the California NOLs begin expiring in 2028 onwards.

As of December 31, 2022, the Company had federal and state research and experimental and other tax credit (“R&D credits”) carry-forwards of approximately $ 21.8 million and $ 22.8 million, respectively.

The federal credits begin to expire after 2022, while the California credits have no expiration.

The federal credits began to expire in 2022, while the California credits have no expiration.

The extent to which the federal and state credit carry forwards can be used to offset future tax liabilities, respectively, may be limited, depending on the extent of ownership changes within any three-year period as provided in the Tax Reform Act of 1986 and the California Conformity Act of 1987.

The Company assesses its deferred tax assets for recoverability on a regular basis, and where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more likely than not, be realized in the future.

Based on all available evidence, both positive and negative, the Company determined a full valuation allowance was still appropriate for its federal and state net deferred tax assets (DTAs) at December 31, 2021, primarily driven by a cumulative loss incurred over the 12-quarter period ended December 31, 2021 and the likelihood that the Company will not utilize tax attributes before they begin to expire at the end of 2022.

The valuation allowance was approximately $ 51.6 million and $ 41.9 million as of December 31, 2021 and 2020, respectively.

The increase in the valuation allowance from December 31, 2020 to December 31, 2021 was primarily driven by net operating losses (NOLs) and credits generated in the current year which require a valuation allowance.

Based on all available evidence, both positive and negative, the Company determined a full valuation allowance was still appropriate for its federal and state net deferred tax assets (DTAs) at December 31, 2022, primarily driven by a cumulative loss incurred over the 12-quarter period ended December 31, 2022 and the likelihood that the Company will not utilize tax attributes before they begin to expire.

The valuation allowance was approximately $ 59.2 million and $ 51.6

million as of December 31, 2022 and 2021, respectively.

The increase in the valuation allowance from December 31, 2021 to December 31, 2022 was primarily driven by a net increase in timing differences relating to deferred revenue, accrued bonus and credits generated in the current year which require a valuation allowance.

Management will continue to evaluate the need for a valuation allowance and may change its conclusion in a future period based on any change in facts (e.g.

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If the Company concludes that it is more likely than not to utilize some or all of its US DTAs, it will release some or all of its valuation allowance and our tax provision will decrease in the period in which we make such determination.

Net deferred tax assets, after the US valuation allowance, was immaterial as of December 31, 2021 and $ 0.2 million as of December 31, 2020.

Net deferred tax assets, after the US valuation allowance, was immaterial as of December 31, 2022, and December 31, 2021.

The components of the net deferred tax assets are comprised of (in thousands):

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Foreign tax credit carry forward

Capitalized research and experimental expenses

Accruals deductible in different periods

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The Company includes interest and penalties related to unrecognized tax benefits within the Company’s income tax provision.

As of December 31, 2021 and 2020, the Company had accrued interest and penalties related to unrecognized tax benefits of $ 0.7 million and of $ 0.8 million, respectively.

As of December 31, 2022, 2021 and 2020, the Company had accrued interest and penalties related to unrecognized tax benefits of $ 0.7 million, $ 0.7 million, and $ 0.8 million, respectively.

In the years ended December 31, 2022, 2021 and 2020, the Company recognized (reversal of) charges for interest and penalties related to unrecognized tax benefits of ($ 61,000 ), ($ 89,000 ) and $ 33,000 respectively, in the Consolidated Statements of Comprehensive Loss.

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Gross unrecognized tax benefits, December 31, 2021

Increases in tax positions for current year

Increases in tax positions for prior years

Lapse in statute of limitations

Gross unrecognized tax benefits, December 31, 2022

The Company does not provide deferred taxes on undistributed earnings of its foreign subsidiaries as it intends to indefinitely reinvest those earnings.

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Non-vested restricted stock units

Employee Stock Purchase Plans

Employee Stock Purchase Plan

CUSTOMER AND GEOGRAPHIC INFORMATION

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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.

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.

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Money market mutual funds

Government securities (1)

Short-term investments (available-for-sale debt securities)

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Short-term investments (available-for-sale debt securities)

Treasury bills

Government securities (1)

(1) The carrying amount of the Company’s investments in U.S.

Treasury bills approximate fair value due to their short-term maturities, and there have been no events or changes in circumstances that would have had a significant effect on the fair value of these securities at December 31, 2021 and 2020.

Government securities approximate fair value due to their short-term maturities, and there have been no events or changes in circumstances that would have had a significant effect on the fair value of these securities at December 31, 2022 and 2021.

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.

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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 Consolidated Statements of Comprehensive Loss.

There was no realized gain or loss from foreign currency forward contracts during the year ended December 31, 2021.

There was no realized gain or loss from foreign currency forward contracts during the years ended December 31, 2022 and 2021.

For the year ended December 31, 2020, the Company recognized a realized loss of $ 0.2 million on the contracts, which is recorded in interest and other expense (income), net in the Company’s Consolidated Statement of Comprehensive Loss.

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Costs of revenues

Net loss per share:

Net income (loss)

Net income (loss) per share:

Basic and diluted

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data