What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-09 · 110 added, 73 removed, 260 unchanged (41% of the section changed)

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or its subsidiaries.

We offer 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.

We offer products and services designed to empower organizations across the semiconductor and electronics ecosystems to connect, collect, manage, and analyze data about design, equipment, manufacturing, and test to improve the yield and quality of their products.

We derive revenues from two sources:

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● Continuing impact of the COVID-19 pandemic .

Although COVID-19 pandemic restrictions are being eased worldwide, the pandemic continues to affect how we and our customers operate our businesses.

Our personnel worldwide have in the past been and, in the future, may become subject to various country-to-country travel restrictions, which limits the ability of some employees to travel to other offices or customer sites.

We believe the lack of an ability to meet in person during most of 2020, 2021 and to some degree the first half of 2022 made it harder for us to sell complex or new technologies to some customers during these periods.

As we continue now again to meet with these customers in person, we believe we may improve traction with them.

One effect of the COVID-19 pandemic is a global shortage in semiconductors due primarily to supply chain disruptions and some market segments, including automotive semiconductors, continue to have shortages in production.

A continuing effect of the COVID-19 pandemic is a global shortage in semiconductors due primarily to supply chain disruptions.

Some market segments, including automotive semiconductors, continue to have shortages in production.

Although COVID-19 related shortages have not materially affected our business, this trend may affect our future business opportunities, particularly future Gainshare and Cimetrix run-time licenses, if our customers’ production volumes decrease.

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The demand for consumer electronics, communications devices, and high-performance computing continues to drive technological innovation in the semiconductor industry as the need for products with greater performance, lower power consumption, reduced costs, and smaller size continues to grow with each new product generation.

In addition, advances in computing systems and mobile devices continue to fuel

demand for higher capacity memory chips.

In addition, advances in computing systems and mobile devices continue to fuel demand for higher capacity memory chips.

To meet these demands, IC manufacturers and designers are constantly challenged to improve the overall performance of their ICs by designing and manufacturing ICs with more embedded applications to create greater functionality while lowering power and cost per transistor.

As this trend continues, companies will continually be challenged to improve process capabilities to optimally produce ICs with minimal random and systematic yield loss, which is driven by the lack of compatibility between the design and its respective manufacturing process.

manufacturing process.

We believe that these difficulties will continue to create a need for our products and services that address yield loss across the IC product life cycle.

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government imposed restrictions on supply to any P.R.C.

fabrication facility that produces certain advanced logic or memory ICs, when the supply involves a commodity, software or technology (“Item”) that is “subject to the EAR” or when the supply involves a “U.S.

fabrication facility that produces certain advanced logic or memory ICs, when the supply involves a commodity, software or technology (an “Item”) that is “subject to the EAR” or when the supply involves a “U.S.

person” even if the Item is not “subject to the EAR.” Another change is a restriction on supply of an Item “subject to the EAR” destined for use in the development or production of certain IC manufacturing equipment and certain parts and components of such equipment in the P.R.C.

Industry members, including our Company, continue to generate questions and evaluate the effects of the new regulations.

government has committed to “rolling guidance” to resolve issues and answer questions in the coming months.

In addition, the U.S.

government expanded the “foreign direct product rules,” and thus EAR jurisdiction and restrictions, to additional foreign-produced Items and in connection with additional restricted parties in the P.R.C.

Based on our current assessments, we expect the impact of these expanded trade restrictions on our business to be limited.

government has informally indicated that it continues to develop further export control restrictions, a final version of the October 2022 rule, and clarifying guidance, all to be issued in the future.

Other countries and jurisdictions with important roles in our industry have announced they intend to update some of their export control regulations to further align with those of the U.S.

In addition, U.S.

government officials have announced that they are developing outbound investment restrictions, which might affect some aspects of conducting business in some regions in unknown ways.

recently imposed restrictions on import of certain memory ICs offered by a U.S.

company and has been developing its legal authorities to counter foreign sanctions.

government is renewing and amplifying its caution that visitors to the P.R.C.

are subject to arbitrary enforcement of local laws and wrongful detention, a risk that could deter or hinder certain business activities.

Based on our current assessments, we expect the near-term impact of these expanded trade restrictions on our business to be limited, but proposals that are still in government development and open questions of interpretation leave much unknown.

We will continue to monitor for any further trade restrictions, other regulatory or policy changes by the U.S.

or foreign governments and any actions in response and remain committed to complying with applicable law.

or foreign governments and any actions in response.

We remain committed to complying with applicable law.

The uncertainty caused by these recent regulations and the potential for additional future restrictions could, nonetheless, negatively affect our future sales in the P.R.C.

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The continuing tension between the U.S.

and/or Russian governments in trade and security matters or the perception of that tension could lead to disruptions or reductions in international trade, deter or prevent purchasing activity of customers, and negatively impact our China sales (with respect to U.S.-P.R.C.

and/or Russian governments in trade and security matters or the perception of that tension could lead to disruptions or reductions in international trade,

deter or prevent purchasing activity of customers, and negatively impact our China sales (with respect to U.S.-P.R.C.

tensions) and financial results in general (with respect to global tensions).

Financial Highlights

Financial highlights for the three months ended March 31, 2023, are as follows:

● Total revenues were $40.8 million, an increase of $7.3 million, or 22%, compared to the three months ended March 31, 2022.

Analytics revenue was $36.3 million, an increase of $5.9 million, or 19%, compared to the three months ended March 31, 2022.

The increase in Analytics revenue was driven by increases in revenue from CV and DFI systems and an increase in revenue from Exensio software licenses, partially offset by a decrease in revenues from Cimetrix software licenses.

Integrated Yield Ramp revenue increased $1.4 million, or 44%, compared to the three months ended March 31, 2022, primarily due to an increase in Gainshare from increased customer wafer shipments at non-leading edge nodes.

● Costs of revenues increased $0.4 million, compared to the three months ended March 31, 2022, primarily due to increases in personnel-related costs, third-party cloud-delivery costs and subcontractor costs.

These increases were partially offset by decreases in facilities and information technology-related costs.

● Net income was $0.4 million, compared to a net loss of $4.2 million for the three months ended March 31, 2022.

The increase in net income was primarily attributable to an increase in total revenues and interest income and decreases in research and development expenses and income tax expense, partially offset by increases in costs of revenues and sales and marketing activities, and general and administrative expenses, which were primarily related to increases in personnel-related costs, legal fees related to the arbitration proceeding over a disputed customer contract, travel expenses, and an increase in foreign currency transaction exchange losses.

● Cash, cash equivalents, and short-term investments at March 31, 2023 were $133.5 million, compared to $139.2 million as of December 31, 2022, a decrease of $5.7 million, primarily due to payments of accrued bonuses, taxes related to net share settlement of equity awards, and purchase of property and equipment, partially offset by cash collection from customers, proceeds from the exercise of stock options, and proceeds from purchases under our employee stock purchase plan.

Financial highlights for the three months ended June 30, 2023, are as follows:

● Total revenues were $41.6 million, an increase of $6.9 million, or 20%, compared to the three months ended June 30, 2022.

Analytics revenue was $37.1 million, an increase of $6.0 million, or 19%, compared to the three months ended June 30, 2022.

The increase in Analytics revenue was driven by an increase in revenue from Exensio software licenses and increases in revenue from CV system, partially offset by a decrease in revenues from Cimetrix software licenses due to lower orders for runtime licenses.

Integrated Yield Ramp revenue increased $0.9 million, or 26%, compared to the three months ended June 30, 2022, primarily due to an increase in Gainshare from increased customer wafer shipments at non-leading edge nodes, partially offset by a decrease in hours worked on fixed fees engagements.

● Costs of revenues increased $0.3 million, compared to the three months ended June 30, 2022, primarily due to increases in hardware costs, third-party cloud-delivery costs and travel expenses.

These increases were partially offset by decreases in personnel-related costs.

● Net income was $6.8 million, compared to a net loss of $1.1 million for the three months ended June 30, 2022.

The increase in net income was primarily attributable to an increase in total revenues, interest income, income tax benefits and a decrease in research and development expenses, partially offset by increases in costs of revenues and sales and marketing activities, and general and administrative expenses, which were primarily related to increases in personnel-related costs, third-party cloud-services related costs, legal expenses, travel expenses, and an increase in foreign currency transaction exchange losses.

Financial highlights for the six months ended June 30, 2023, are as follows:

● Total revenues were $82.4 million, an increase of $14.2 million, or 21%, compared to the six months ended June 30, 2022.

Analytics revenue was $73.5 million, an increase of $11.9 million, or 19%, compared to the six months ended June 30, 2022.

Integrated Yield Ramp revenue increased $2.3 million, or 34%, compared to the six months ended June 30, 2022, primarily due to an increase in Gainshare from increased customer wafer shipments at non-leading edge nodes, partially offset by a decrease in hours worked on fixed fees engagements.

● Costs of revenues increased $0.7 million, compared to the six months ended June 30, 2022, primarily due to increases in travel expenses, hardware and third-party cloud-delivery costs.

These increases were partially offset by decreases in facilities and IT-related costs and personnel-related costs.

● Net income was $7.2 million, compared to a net loss of $5.3 million for the six months ended June 30, 2022.

The increase in net income was primarily attributable to an increase in total revenues, interest income, income tax benefits and a decrease in research and development expenses, partially offset by increases in costs of revenues and sales and marketing activities, and general and administrative expenses, which were primarily related to increases in personnel-related costs, legal fees related to the arbitration proceeding over a disputed customer contract, travel expenses, third-party cloud-services related costs, facilities and IT-related costs, and an increase in foreign currency transaction exchange losses.

● Cash, cash equivalents, and short-term investments at June 30, 2023 were $124.0 million, compared to $139.2 million as of December 31, 2022, a decrease of $15.1 million, primarily due to payments of accrued bonuses, legal fees related to the arbitration proceeding over a disputed customer contract, purchases of property and

equipment, and taxes related to net share settlement of equity awards, partially offset by cash collection from customers, proceeds from purchases under our employee stock purchase plan, and proceeds from the exercise of stock options.

Critical Accounting Estimates

See Note 1, Basis of Presentation And Summary of Significant Accounting Policies , to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, for a description of recent accounting pronouncements and accounting changes, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements, and to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023.

There were no material changes during the three months ended March 31, 2023, to the items that we disclosed as our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

See Note 1, Basis of Presentation And Summary of Significant Accounting Policies , to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q, for a description of recent accounting pronouncements and accounting changes, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements, and to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023.

There were no material changes during the three and six months ended June 30, 2023, to the items that we disclosed as our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

The following is a brief discussion of the more significant accounting policies and methods that we use.

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We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

The most significant estimates and assumptions relate to revenue recognition, valuation of long-

lived assets including goodwill and intangible assets, and the realization of deferred tax assets.

The most significant estimates and assumptions relate to revenue recognition, valuation of long-lived assets including goodwill and intangible assets, and the realization of deferred tax assets.

Actual amounts may differ from such estimates under different assumptions or conditions.

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Based on all available evidence, both positive and negative, we determined a full valuation allowance was still appropriate for our U.S.

federal and state net DTAs, primarily driven by a cumulative loss incurred over the 12-quarter period ended March 31, 2023, and the likelihood that we may not utilize tax attributes before they expire.

The valuation allowance was approximately $59.2 million as of March 31, 2023, and December 31, 2022.

federal and state net DTAs, primarily driven by a cumulative loss incurred over the 12-quarter period ended June 30, 2023, and the likelihood that we may not utilize tax attributes before they expire.

The valuation allowance was approximately $59.2 million as of June 30, 2023, and December 31, 2022.

We will continue to evaluate the need for a valuation allowance and may change our conclusion in a future period based on changes in facts (e.g., 12-quarter cumulative profit, significant new revenue, etc.).

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This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between future projected operating performance and actual results.

Changes in the net DTAs, less offsetting valuation allowance, in a period are recorded through the income tax provision and could have a material impact on the condensed consolidated statements of comprehensive income (loss).

Changes in the net DTAs, less offsetting valuation allowance, in a period are recorded through

the income tax provision and could have a material impact on the condensed consolidated statements of comprehensive income (loss).

Our income tax calculations are based on the application of applicable U.S.

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To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the condensed consolidated statements of comprehensive income (loss).

As of March 31, 2023, no deferred taxes have been provided on undistributed earnings from our international subsidiaries.

As of June 30, 2023, no deferred taxes have been provided on undistributed earnings from our international subsidiaries.

We intend to reinvest the earnings of our non-U.S.

subsidiaries in those operations indefinitely.

As such, we have not provided for any foreign withholding taxes on the earnings of foreign subsidiaries as of March 31, 2023.

As such, we have not provided for any foreign withholding taxes on the earnings of foreign subsidiaries as of June 30, 2023.

The earnings of our foreign subsidiaries are taxable in the U.S.

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We have one operating segment and one operating unit.

We perform an annual impairment assessment of goodwill during the fourth quarter of each calendar year or more frequently, if required to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill.

carrying amount, including goodwill.

If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required.

If the carrying amount exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill.

There was no impairment of goodwill for the three months ended March 31, 2023.

There was no impairment of goodwill for the three and six months ended June 30, 2023.

Our long-lived assets, excluding goodwill, consist of property, equipment, and intangible assets.

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If it is determined that an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds its fair value.

There was no impairment of long-lived assets for the three months ended March 31, 2023.

There was no impairment of long-lived assets for the three and six months ended June 30, 2023.

Recent Accounting Pronouncements and Accounting Changes

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Results of Operations

Discussion of Financial Data for the Three Months ended March 31, 2023 and 2022

Discussion of Financial Data for the Three and Six Months ended June 30, 2023 and 2022

Revenues, Costs of Revenues, and Gross Margin

Three Months Ended

Six Months Ended

(Dollars in thousands)

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Analytics Revenue

Analytics revenue increased $5.9 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The increase in Analytics revenue was primarily driven by increases in revenues from CV and DFI systems and an increase in revenue from Exensio software licenses, partially offset by a decrease in revenue from Cimetrix software licenses.

Analytics revenue increased $6.0 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

Analytics revenue increased $11.9 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Integrated Yield Ramp Revenue

Integrated Yield Ramp revenue increased $1.4 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to an increase in Gainshare from increased customer wafer shipments at non-leading edge nodes.

Integrated Yield Ramp revenue increased $0.9 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily due to an increase in Gainshare from increased customer wafer shipments at non-leading edge nodes, partially offset by a decrease in hours worked on fixed fees engagements.

Integrated Yield Ramp revenue increased $2.3 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily due to an increase in Gainshare from increased customer wafer shipments at non-leading edge nodes, partially offset by a decrease in hours worked on fixed fees engagements.

Our Integrated Yield Ramp revenue may continue to fluctuate from period to period primarily due to the contribution of Gainshare, which is dependent on many factors that are outside our control, including among others, continued production of ICs by our customers at facilities at which we generate Gainshare, sustained yield improvements by our customers, and whether we enter into new contracts containing Gainshare.

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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.

Service costs include material, hardware, 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 third-party cloud-delivery related expenses and licensing third-party software used by us in providing services to our customers in solution engagements or sold in conjunction with our software products.

The increase in costs of revenues of $0.4 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was primarily due to (i) a $0.2 million increase in personnel-related costs due to stock-based compensation expense, (ii) a $0.1 million increase in third-party cloud-delivery costs, and (iii) a $0.1 million increase in subcontractor costs.

These were partially offset by a $0.2 million decrease in facilities and IT-related costs.

Gross margin increased 5 percentage points for the three months ended March 31, 2023, to 71%, compared to 66% for the three months ended March 31, 2022.

The higher gross margin during the three months ended March 31, 2023, was primarily due to higher total revenue, including Gainshare, when compared to the year-ago period.

The increase in costs of revenues of $0.3 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, was primarily due to (i) a $0.4 million increase in hardware costs, (ii) a $0.2 million increase in travel expenses, and (iii) a $0.1 million increase in third-party cloud-delivery costs.

These were partially offset by a $0.3 million decrease in personnel-related costs due to lower compensation expense, partially offset by an increase in stock-based compensation expense.

The increase in costs of revenues of $0.7 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, was primarily due to (i) a $0.3 million increase in hardware costs, (ii) a $0.3 million increase in travel expenses, (iii) a $0.3 million increase in third-party cloud-delivery costs, and (iv) a $0.1 million increase in subcontractor costs.

These were partially offset by (i) a $0.2 million decrease in facilities and IT-related costs including depreciation expense and (ii) a $0.1 million decrease in personnel-related costs due to lower compensation expense, partially offset by an increase in stock-based compensation expense.

Gross margin increased 5 percentage points for the three months ended June 30, 2023, to 70%, compared to 65% for the three months ended June 30, 2022.

The higher gross margin during the three months ended June 30, 2023, was primarily due to higher total revenue, including Gainshare, when compared to the year-ago period.

Gross margin increased 6 percentage points for the six months ended June 30, 2023, to 71%, compared to 65% for the six months ended June 30, 2022.

The higher gross margin during the six months ended June 30, 2023, was primarily due to higher total revenue, including Gainshare, when compared to the year-ago period.

Operating Expenses:

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Six Months Ended

(Dollars in thousands)

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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 decreased $1.0 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to (i) a $1.7 million decrease in personnel-related costs primarily resulting from a lower stock-based and other compensation expenses, partially offset by worldwide salary increases, (ii) a $0.2 million decrease in facilities and IT-related costs including depreciation expense.

These were partially offset by (i) a $0.5 million increase in subcontractor expenses primarily related to DFI systems and Exensio and Cimetrix software, (ii) a $0.2 million increase in travel expenses, and (iii) a $0.1 million increase in third-party cloud-services related costs.

Research and development expenses decreased $1.1 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily due to a $1.5 million decrease in personnel-related costs mostly resulting from a lower stock-based and other compensation expenses, partially offset by worldwide salary increases and increases in headcount.

These were partially offset by (i) a $0.2 million increase in subcontractor expenses primarily related to Exensio and Cimetrix software, and (ii) a $0.1 million increase in third-party cloud-services related costs.

Research and development expenses decreased $2.1 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily due to (i) a $3.1 million decrease in personnel-related costs mostly resulting from a lower stock-based and other compensation expenses, partially offset by worldwide salary increases and increases in headcount, and (ii) a $0.2 million decrease in facilities and IT-related costs including depreciation expense.

These were partially offset by (i) a $0.7 million increase in subcontractor expenses primarily related to Exensio and Cimetrix software, (ii) a $0.2 million increase in third-party cloud-services related costs, and (iii) a $0.2 million increase in travel expenses.

We anticipate our expenses in research and development will fluctuate in absolute dollars from period to period as a result of the size and the timing of product development projects.

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Three Months Ended

Six Months Ended

(Dollars in thousands)

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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.

Selling, general, and administrative expenses increased $4.8 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to (i) a $2.9 million increase in personnel-related costs mainly resulting from increases in headcount, stock-based compensation expense, worldwide salary increases, commission expenses, and employee benefit costs, (ii) a $1.7 million increase in legal fees related to the arbitration proceeding over a disputed customer contract, (iii) a $0.3 million increase in facilities and IT-related costs including depreciation expense, and

(iv) a $0.2 million increase in travel expenses.

These were partially offset by (i) a $0.2 million decrease in third-party cloud-services related costs and (ii) a $0.1 million decrease in subcontractor expenses.

Selling, general, and administrative expenses increased $5.0 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily due to (i) a $4.6 million increase in personnel-related costs mainly resulting from increases in stock-based and other compensation expense, including commission, discretionary bonuses and employee benefit costs, headcount and worldwide salary increases, (ii) a $0.2 million increase in business acquisition costs, (iii) a $0.2 million increase in third-party cloud-services related costs, (iv) a $0.2 million increase in travel expenses, and (v) a $0.1 million increase in legal fees related to the arbitration proceeding over a disputed customer contract.

These were partially offset by a $0.3 million decrease in subcontractor expenses.

Selling, general, and administrative expenses increased $9.8 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily due to (i) a $7.5 million increase in personnel-related costs mainly resulting from increases in stock-based and other compensation expense, including commission, discretionary bonuses and employee benefit costs, headcount and worldwide salary increases, (ii) a $1.8 million increase in legal fees related to the arbitration proceeding over a disputed customer contract, (iii) a $0.4 million increase in travel expenses, (iv) a $0.3 million increase in facilities and IT-related costs including depreciation expense, and (v) a $0.2 million increase in business acquisition costs.

These were partially offset by a $0.4 million decrease in subcontractor expenses.

We anticipate our selling, general, and administrative expenses will fluctuate in absolute dollars from period to period as a result of cost control initiatives and to support increased selling efforts in the future.

Amortization of Other Acquired Intangible Assets

Amortization of Acquired Intangible Assets

Three Months Ended

Six Months Ended

(Dollars in thousands)

Amortization of acquired intangible assets

Amortization of other acquired intangible assets primarily consists of amortization of intangibles acquired as a result of certain business combinations.

Amortization of acquired intangible assets primarily consists of amortization of intangibles acquired as a result of certain business combinations.

Interest and Other Expense (Income), Net

Three Months Ended

Six Months Ended

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Interest and other expense (income), net, primarily consists of interest income and foreign currency transaction exchange gains and losses.

Interest and other expense (income), net increased $0.6 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to a higher interest income, partially offset by higher foreign currency exchange loss resulting from a net unfavorable fluctuation in foreign exchange rates.

Interest and other expense (income), net increased $0.1 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, primarily due to a higher interest income resulting from higher interest rates, partially offset by higher foreign currency exchange loss resulting from a net unfavorable fluctuation in foreign exchange rates.

Interest and other expense (income), net increased $0.7 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, primarily due to a higher interest income resulting from higher interest rates, partially offset by higher foreign currency exchange loss resulting from a net unfavorable fluctuation in foreign exchange rates.

Income Tax Expense

Three Months Ended

Six Months Ended

(Dollars in thousands)

Income tax expense

Income tax expense decreased for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, primarily due to changes in the year-to-date recognition of worldwide pre-tax income (loss) in relation to their forecasted amounts for full years.

Income tax expense (benefit)

Income tax expense decreased for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, primarily due to changes in the foreign and state taxes and year-to-date recognition of worldwide pre-tax income (loss) in relation to their forecasted amounts for full years.

Any significant change in our future effective tax rates could adversely impact our consolidated financial position, results of operations and cash flows.

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Liquidity and Capital Resources

As of March 31, 2023, our working capital, defined as total current assets less total current liabilities, was $138.9 million, compared to $135.2 million as of December 31, 2022.

Total cash, cash equivalents, and short-term investments were $133.5 million as of March 31, 2023, compared to cash and cash equivalents of $139.2 million as of December 31, 2022.

As of March 31, 2023, and December 31, 2022, cash and cash equivalents held by our foreign subsidiaries were $10.0 million and $8.8 million, respectively.

As of June 30, 2023, our working capital, defined as total current assets less total current liabilities, was $152.3 million, compared to $135.2 million as of December 31, 2022.

Total cash, cash equivalents, and short-term investments were $124.0 million as of June 30, 2023, compared to cash and cash equivalents of $139.2 million as of December 31, 2022.

As of June 30, 2023, and December 31, 2022, cash and cash equivalents held by our foreign subsidiaries were $11.3 million and $8.8 million, respectively.

We believe that our existing cash resources and anticipated funds from operations will satisfy our cash requirements to fund our operating activities, capital expenditures, other obligations for at least the next twelve months.

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The following table summarizes our cash flows for the periods presented:

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

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Net Cash Flows Provided by (Used in) Operating Activities

Cash flows used in operating activities during the three months ended March 31, 2023, consisted of net income, adjusted for certain non-cash items which primarily consisted of depreciation and amortization, stock-based compensation expense, amortization of acquired intangible expense, amortization of costs capitalized to obtain revenue contracts and net change in operating assets and liabilities.

The $4.0 million decrease in cash flows provided by (used in) operating activities for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was driven primarily by a $7.8 million decrease in net change from operating assets and liabilities and a $0.7 million decrease in non-cash adjustments to net income (loss), which mainly resulted from a decrease in stock-based compensation expense of $0.7 million, partially offset by an increase in net income of $4.5 million.

The major contributors to the net change in operating assets and liabilities for the three months ended March 31, 2023, were as follows:

Cash flows used in operating activities during the six months ended June 30, 2023, consisted of net income, adjusted for certain non-cash items which primarily consisted of depreciation and amortization, stock-based compensation expense, amortization of acquired intangible expense, amortization of costs capitalized to obtain revenue contracts and net change in operating assets and liabilities.

Net cash flows used in operating activities was $6.6 million for the six months ended June 30, 2023, compared to net cash flows provided by operating activities of $6.6 million for the six months ended June 30, 2022.

The $13.2 million decrease in cash flows from operating activities between the periods was driven primarily by (i) an increase in accounts receivable from increased invoicing activities during the six months ended June 30, 2023 compared to the same period in 2022, and (ii) payments made under the Company’s bonus plan, partially offset by (a) an increase in deferred revenue due to timing of billing and revenue recognition, and (b) a significant increase in net income compared to the same period in 2022.

was $7.2 million for the six months ended June 30, 2023, compared to a net loss of $5.3 million for the six months ended June 30, 2022.

The major contributors to the net change in operating assets and liabilities for the six months ended June 30, 2023, were as follows:

● Accounts receivable increased by $19.3 million, primarily due to higher contractual invoicing activity and an increase in unbilled accounts receivables due to the timing of billing and revenue recognition, partially offset by collections from customers.

● Prepaid expense and other current assets increased by $1.0 million, primarily due to an increase in income tax receivable, deferred commission, prepaid expenses related to third party software licenses, partially offset by lower contract assets;

● Accounts payable increased by $1.3 million primarily due to the timing of payments of vendor invoices;

● Accrued compensation and related benefits decreased by $3.1 million primarily due to the payment of accrued bonuses and exercise of purchase rights under employee stock purchase plan, partially offset by an increase in accrued payroll taxes;

● Deferred revenue increased by $0.7 million and billings in excess of recognized revenues decreased by $1.5 million, primarily due to the timing of billing and revenue recognition.

Subsequent to June 30, 2023, we collected more than half of the total $44.9 million billed accounts receivable as of that date;

● Prepaid expense and other current assets increased by $7.5 million, primarily due to an increase in income tax receivable, contract assets and deferred commission;

● Accounts payable decreased by $2.8 million primarily due to the timing of payments of vendor invoices;

● Accrued compensation and related benefits decreased by $6.0 million primarily due to the payments of accrued bonuses and a decrease in accrued commissions, partially offset by an increase in accrued contributions to the employee stock purchase plan;

● Deferred revenue increased by $7.4 million primarily due to the timing of billing and revenue recognition.

Net Cash Flows Provided by (Used in) Investing Activities

Net cash used in investing activities was $2.3 million for the three months ended March 31, 2023, compared to net cash provided by investing activities of $12.3 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023, cash used in investing activities primarily related to purchases of short-term investments of $6.4 million and purchases of property and equipment of $2.9 million primarily related to our DFI systems and CV systems, partially offset by proceeds from maturities and sales of short-term investments of $7.0 million.

For the three months ended March 31, 2022, cash provided by investing activities primarily related to proceeds from maturities and sales of short-term investments of $35.0 million, partially offset by purchases of short-term investments of $21.0 million and property and equipment of $1.8 million primarily related to our DFI systems.

Net cash used in investing activities was $9.7 million for the six months ended June 30, 2023, compared to net cash provided by investing activities of $72.0 million for the six months ended June 30, 2022.

For the six months ended June 30, 2023, cash used in investing activities primarily related to purchases of short-term investments of $23.5 million and purchases of and prepayments for property and equipment of $6.0 million primarily related to our DFI and CV systems, partially offset by proceeds from maturities and sales of short-term investments of $19.8 million.

For the six months ended June 30, 2022, cash provided by investing activities primarily related to proceeds from maturities and sales of short-term investments of $112.5 million, partially offset by purchases of short-term investments of $35.9 million, and purchases of and prepayments for property and equipment of $4.6 million primarily related to our DFI and CV systems.

Net Cash Flows Used in Financing Activities

Net cash used in financing activities was $2.1 million for the three months ended March 31, 2023, compared to $7.0 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023, net cash used in financing activities primarily consisted of $4.1 million in cash payments for taxes related to net share settlement of equity awards, partially offset by $2.0 million of proceeds from our employee stock purchase plans and exercise of stock options.

For the three months ended March 31, 2022, net cash used in financing activities primarily consisted of $5.8 million for the repurchase of shares of our common stock and $3.4 million in cash payments for taxes related to net share settlement of equity awards, partially offset by $2.2 million of proceeds from our employee stock purchase plans and exercise of stock options.

Net cash used in financing activities was $2.5 million for the six months ended June 30, 2023, compared to $24.4 million for the six months ended June 30, 2022.

For the six months ended June 30, 2023, net cash used in financing activities primarily consisted of $4.6 million in cash payments for taxes related to net share settlement of equity awards, partially offset by $2.1 million of proceeds from our employee stock purchase plans and exercise of stock options.

For the six months ended June 30, 2022, net cash used in financing activities primarily consisted of $22.5 million for the repurchase of shares of our common stock and $4.2 million in cash payments for taxes related to net share settlement of equity awards, partially offset by $2.3 million of proceeds from our employee stock purchase plans and exercise of stock options.

Related Party Transactions

Refer to Note 3, Strategic Partnership Agreement with Advantest and Related Party Transactions , to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, for the discussion about related party transactions between the Company and Advantest (as defined therein).

Refer to Note 12, Strategic Partnership Agreement with Advantest and Related Party Transactions , to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q, for the discussion about related party transactions between the Company and Advantest (as defined therein).

Off-Balance Sheet Agreements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis