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Item 1A. Risk Factors

2024-02-27 compared with 2023-03-01 · 212 added, 134 removed, 232 unchanged (60% of the section changed)

A description of the risk factors associated with our business is set forth below.

Some of these risks are highlighted in the following discussion, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations, Legal Proceedings, and Quantitative and Qualitative Disclosures About Market Risk.

The occurrence of any of these risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, operating results, financial condition, and stock price.

These risks and uncertainties could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report.

Investors should carefully consider all relevant risks and uncertainties before investing in our common stock.

Risk Factors Summary

Risks Associated with Our Business

We have invested significant resources into research and development of our DFI system and Exensio platform and if we fail to successfully carry out these initiatives on the expected timeline or at all, our business, financial condition, or results of operations could be adversely impacted.

As part of the evolution of our business, we have made substantial investments in research and development efforts to develop our DFI system and Exensio cloud-based platform.

New competitors, technological advances in the semiconductor industry or by competitorsor other competitive factors may require us to further invest significantly greater resources than we anticipate.

If we are required to invest significantly greater resources than anticipated without a corresponding increase in revenue, our operating results could decline.

There can be no guarantee that the technologies or products that we invest in will result in products that create additional revenue.

We may not recoup our research and development investments, which could cause our results to suffer.

If our DFI system and Exensio platform do not anticipate technological changes in our industry or fail to meet market demand, we may not capture the market share we anticipate, lose our competitive position, our products may become obsolete, and our business, financial condition or results of operations could be adversely affected.

● We have invested significant resources into research and development of our DFI system and Exensio software and if we fail to successfully carry out these initiatives on the expected timeline or at all, our business, financial condition, or results of operations could be adversely impacted.

● Our sales cycle is lengthy and customers may delay entering into contracts or decide not to adopt our products or solutions after we have performed services or supported their evaluation of our technology, which could result in delays in recognizing revenue and could negatively impact our results of operations in a quarter or result in lower revenue than we expected if a contract is not consummated.

● We rely on sole-source providers for certain software as well as for specialized parts for our eProbe hardware and supply-chain delays or disruptions could increase our costs or impact our ability to provide complete software solutions or to build additional hardware tools or meet customer expectations or deadlines, which could result in lost sales and lower earnings.

● Our fixed-fee services for product or system installations/configurations may take longer than budgeted, which could slow our revenue recognition and may result in a lost contract or a claim of breach by our customers, which would negatively affect our financial and operating results.

● Our ability to sell our products, systems, and solutions depends in part on the quality of our support and services offerings, and the failure to offer high-quality support and services could negatively affect our sales and results of operations.

● Defects in our proprietary technologies, hardware and software tools, and failure to effectively remedy any such defects could decrease our revenue and our competitive market share.

● Objectionable disclosure of our customers’ confidential information or our failure to comply with our customers’ security rules, including for those related to SaaS access, AI use, or our on-site access, could result in costly litigation, cause us to lose existing and potential customers, or negatively impact on-going business with existing customers.

● We generate a significant portion of our revenues from a limited number of customers, and a large percentage of our revenues from one customer, so defaults or decreased business with, or the loss of, any one of these customers, or pricing pressure, or customer consolidation could significantly reduce our revenues or margins and negatively impact results of operations.

● If we do not continuously meet our development milestones of key research and development projects or successfully commercialize our DFI system, our future market opportunity and revenues will suffer, and our costs may not be recouped.

● We are required to comply with governmental export and import requirements that could subject us to liability and restrict our ability to sell our products and services, which could impair our ability to compete in international markets.

● Decreases in wafer volumes at our customers’ manufacturing sites or the volume of ICs that some of our customers are able to sell to their customers would cause our Integrated Yield Ramp revenue to suffer.

● We acquired an early-stage battery-solutions provider and have been investing in research and development for new products and services beyond our traditional semiconductor focus, and it could take a long time to reach market acceptance and recoup our costs, if at all.

● Our success depends upon our ability to effectively plan and manage our resources and restructure our business through rapidly fluctuating economic and market conditions, which actions may have an adverse effect on our financial and operating results.

● Our business may be negatively impacted by social, political, geopolitical, economic instability, unrest, war, terrorism, or other circumstances that could interrupt our business operations, which could cause us to lose sales or delay or be unable to fulfill contractual commitments, which may have an adverse effect on our financial and operating results.

● Global economic conditions or semiconductor market conditions could materially adversely impact demand for our products and services, decrease our sales, or delay our sales cycle.

● We face challenges in providing a comprehensive solution outside of the semiconductor industry due to limitations on the business areas in which we can use current third-party licensed technology, which may make it prohibitively expensive to sell our solution for applications outside of our traditional industry.

Risks Related to Our Technology

● If we fail to protect our IP rights, customers or potential competitors may be able to use our technologies to develop their own solutions, which could weaken our competitive position, reduce our revenues, or increase our costs.

● We are exposed to risks related to information technology infrastructure, information management and protection, cybersecurity threats, and cyber incidents.

● We and our customers are subject to laws and regulations concerning data privacy, data security, consumer protection, and advertising and these laws and regulations are continually evolving, which exposes us to potential material risks.

● Our technologies could infringe the IP rights of others, causing costly litigation and the loss of significant rights.

● Competition in the market for data analytics and related systems and services may intensify in the future, which could impede our ability to grow or execute our strategy.

● Generative AI and the user other advanced AI technologies for software development may subject us to claims of misappropriation of others’ IP, bugs/errors, and ambiguous ownership of created content.

Risks Related to Our Operations

● Measurement of our variable consideration sometimes require data collection and customers’ use of estimates and are contingent upon customers’ consent and may be later offset if actual data differ from customers’ estimates, which can result in uncertainty and cause quarterly results to fluctuate.

● We have customers with past due balances and our failure to collect a significant portion of such balances could adversely affect our cash, require us to write-off receivables, or increase our expense or allowance for credit losses.

● We face operational and financial risks associated with international operations that could negatively impact our revenues.

● Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to ESG matters that could expose us to numerous risks.

● Provision of certain of our data services relies on installing, configuring, and operating proprietary configuration of hardware and software systems located in third-party facilities and errors affecting such facilities’ operations could lead to liability for us, and any objection from such third-party facility or delay in providing us physical or logical access to our systems may adversely impact our ability to timely perform our contract obligations or lead to confidentiality, integrity, availability, security, or privacy controls exceptions.

federal tax reform and changes in foreign tax laws could change our tax burden and adversely affect our business and financial condition.

● Future events may impact our deferred tax asset position, including the utilization of net operating loss and tax credit carryforwards.

Risks Related to Our Strategic Transactions

● We may devote significant time and resources to developing strategic relationships but we may not realize the benefits of such efforts, which could have an adverse effect on our business and results of operations.

● Our acquisitions create special risks and challenges that could adversely affect our financial results.

General Risk Factors

● If we are not able to retain, attract, motivate, and strategically locate talented employees, including some key executives, our business may suffer.

● Our earnings per share and other operating results may vary quarter to quarter, which could result in not meeting investors’ expectations and stock price volatility.

● Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of our securities.

Risks Associated with Our Business

We have invested significant resources into research and development of our DFI system and Exensio software and if we fail to successfully carry out these initiatives on the expected timeline or at all, our business, financial condition, or results of operations could be adversely impacted.

As part of the evolution of our business, we have made substantial investments in research and development efforts to develop our DFI system and Exensio software.

New competitors, technological advances in the semiconductor industry or other competitive factors may require us to further invest significantly greater resources than we anticipate.

If we invest significantly greater resources than anticipated without a corresponding increase in revenue, our operating results could decline.

The technologies and products that we invest in may not result in products that create additional revenue, and we

may not recoup our investments, which could cause our results to suffer.

If our DFI system and Exensio software do not anticipate technological changes in our industry or fail to meet market demand, we may not capture the market share we anticipate, we may lose our competitive position, our products may become obsolete, and our business, financial condition or results of operations could be adversely affected.

Additionally, our periodic research and development expenses may be independent of our level of revenue, which could negatively impact our financial results.

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Further, if we were to incur significant costs and then fail to enter into a final contract, we would have to write-off such deferred costs in the period in which the negotiations ended, which would increase our costs and expenses and could result in significant operating losses.

Our fixed-fee services or product or system installations/configurations may take longer than budgeted, which could slow our revenue recognition and may also result in a lost contract or a claim of breach by our customers, which would negatively affect our operating results.

We rely on sole-source providers for certain software as well as for specialized parts for our eProbe hardware and supply-chain delays or disruptions could increase our costs or impact our ability to provide complete software solutions or to build additional hardware tools or meet customer expectations or deadlines, which could result in lost sales and lower earnings.

We provide some enabling technology under license and support from sole-source providers and some of our vendors provide highly specialized, differentiated products and services related to our eProbe system.

In the event these licensors or vendors delay or discontinue providing such products and services to us, it may be difficult and costly or impossible for us to replace such suppliers or parts.

In the case of licensed software, this could impact our ability to grow our sales or to meet the support expectations of our customers and we may need to resort to legal action, which could limit our future sales, harm our reputation, increase our costs, and harm our earnings.

For example, in November 2023, a provider of enabling technology abruptly stopped providing maintenance and support of their software product to us.

As a result, we resorted to legal action, which caused us to incur increased legal expenses beginning in the fourth quarter of 2023.

The matter is ongoing, and the long-term impact of this provider’s actions on our business and our customers is unknown at this time.

In the case of vendors related to our eProbe tool, such disruptions or delays could delay or stop our ability to complete and deliver our DFI systems as currently designed to our customers, which would negatively impact our bookings and revenue related to such systems.

In addition, such delays or disruptions to our supply chain could significantly increase our component costs, or personnel-related costs if we need to build a replacement solution in the case of certain software elements, and could impact our ability to build future generations or models of our eProbe tools, any of which would decrease or delay our sales, earnings, and liquidity and could otherwise adversely affect our business and result in increased costs.

Such a delay or disruption could occur as a result of any number of events, including, but not limited to:

failure to comply with existing contracts, higher priority alternative buyers, inflation and global interest rates increasing component costs, a closure or slowdown at our suppliers’ plants or shipping delays including, for example, those made to combat the spread of COVID-19, market shortages for critical components, increases in prices, the imposition of regulations, quotas, embargoes or tariffs on components or our products, labor stoppages or shortages, our suppliers’ supply chain disruptions, third-party interference, cyberattacks, severe weather conditions including the adverse effects of climate change-related events, geopolitical developments, war or terrorism, and disruptions in utilities and other services.

In addition, the

development, licensing, or acquisition of new products in the future may increase the complexity of supply chain management.

Failure to effectively manage our supply of components and products could adversely affect our business.

Our fixed-fee services for product or system installations/configurations may take longer than budgeted, which could slow our revenue recognition and may result in a lost contract or a claim of breach by our customers, which would negatively affect our financial and operating results.

Our fixed-fee services, including for Characterization, require a team of engineers to collaborate with our customers to address complex issues by using our software and other technologies, and the installation and configuration of our software into our customers’ fabrication and test/assembly facilities requires experienced engineers working with our customers on active foundry and test/assembly equipment.

We must accurately estimate the amount of resources needed to complete these types of services to determine when the engineers will be able to commence their next engagement.

We must accurately estimate the amount of time and resources needed to complete these types of services to determine when the engineers will be able to commence their next engagement.

In addition, our accounting for contracts with such services, which generate fixed fees, sometimes requires adjustments to profit and loss based on revised estimates during the performance of the contract.

These adjustments may have a material effect on our results of operations in the period in which they are made.

The estimates giving rise to these risks, which are inherent in fixed-price contracts, include the forecasting of costs and schedules, and contract revenues related to contract

If we fail to meet a customer’s expectations in either case, the customer could claim that we breached our obligations, which could result in lost revenue and increased expenses.

The estimates giving rise to these risks, which are inherent in fixed-price contracts, include the forecasting of costs and schedules, and contract revenues related to contract performance.

If we fail to meet a customer’s expectations, the customer could terminate their contract with us or claim that we breached our obligations, which could negatively affect our financial and operating results.

Our ability to sell our products, systems, and solutions depends in part on the quality of our support and services offerings, and the failure to offer high-quality support and services could negatively affect our sales and results of operations.

Once our products are integrated within our customers’ hardware and software systems, our customers may depend on our support organization to resolve any issues relating to our products.

Further, in connection with delivering our SaaS, which requires us to maintain adequate server hardware and internet infrastructure, including system redundancies, we are required to meet contractual uptime obligations.

Further, in connection with delivering our SaaS Services, which requires us to maintain adequate server hardware and internet infrastructure, including system redundancies, we are required to meet contractual uptime obligations.

A high level of system and support is critical for the successful marketing and sale of our products.

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Further, the cost of support resources required to remedy any defects in our technologies, hardware, or software tools could exceed our expectations.

We have and may further incorporate AI solutions and related technologies for use in product development, or into our platform, offerings, services and features, and these applications may become important in our operations over time.

If the content, analyses, recommendations, or other output that AI applications assist in producing are or are alleged to be deficient, inaccurate, or imprecise, our business, financial condition, and results of operations may be adversely affected.

Any actual or perceived defects with our software, hardware, or proprietary technologies may also hinder our ability to attract or retain industry partners or customers, leading to a decrease in our revenue.

These defects are frequently found during the period following introduction of new software, hardware, or proprietary technologies or enhancements to existing software, hardware, or proprietary technologies, which means that we may not discover the errors or defects until after customer implementation.

These defects are frequently found during the period following introduction of new software, hardware, or proprietary technologies or enhancements to existing software,

hardware, or proprietary technologies, which means that we may not discover the errors or defects until after customer implementation.

If our software, hardware, or proprietary technologies contain errors or defects, it could require us to expend significant resources to remedy these problems or defend/indemnify claims, which could reduce margins and result in the diversion of technical and other resources from our other customer implementations and development efforts.

Objectionable disclosure of our customers’ confidential information or our failure to comply with our customers’ security rules, including for those related to SaaS access or our on-site access could result in costly litigation, cause us to lose existing and potential customers, or negatively impact on-going business with existing customers.

Our customers consider their product yield and test information and other confidential information, which we collect in the ordinary course of our engagement with the customer or through our software tools, including data and personal data about our customers’ employees necessary to administer the licenses, to be extremely competitively sensitive or subject to strict protection frameworks.

Many of our customers have strict security rules for on-site access to, hosting of, or transfer of their confidential information.

As a result of increased regulatory and customer scrutiny of all data processing activities, as well as increasing and evolving regulation of such practices, we have security obligations on how we collect, transfer and use data (including personal data), which could require us to expend money and resources to comply with those requirements, and if compromised, could have a material adverse effect on our business, financial condition and results of operations, including the potential for regulatory investigations, enforcement actions, lawsuits and a loss of business and a degradation of our reputation.

If we suffer an unauthorized intrusion or we inadvertently disclose or are required to disclose this information, or disclose this information in a manner that was objectionable to our customers,

regulators, consumer protection groups, or privacy groups, or if we fail to adequately comply with customers’ security protocols for accessing or hosting confidential information, our reputation could be materially adversely affected, we could lose existing and potential customers or could be subject to costly penalties or litigation, or our on-going business could be negatively impacted and insurance to cover such situations may not fully cover our exposure.

Objectionable disclosure of our customers’ confidential information or our failure to comply with our customers’ security rules, including for those related to SaaS access, AI use, or our on-site access, could result in costly litigation, cause us to lose existing and potential customers, or negatively impact on-going business with existing customers.

In the ordinary course of providing SaaS or other services engagements, we may collect customers’ product, process, and test information, personally-identifiable data about their employees needed to administer licenses, and other confidential information.

Our customers consider most of this information to be competitively sensitive and, in some cases, require us to comply with strict protection frameworks, including security rules for on-site or remote access to, hosting of, or transfer of their confidential information.

As a result of increased regulatory and customer scrutiny of all data processing activities, as well as increasing and evolving regulation of such practices, we have security obligations on how we collect, transfer and use data (including personal data), which could require us to expend money and resources to comply with those requirements, and if compromised again, could have a material adverse effect on our business, financial condition, and results of operations, including the potential for regulatory investigations, enforcement actions, lawsuits, and a loss of business and a degradation of our reputation.

If we fail to implement industry standard protections and processing procedures, the growing awareness of our customers and potential customers regarding privacy and data security requirements and/or adverse media coverage or regulatory scrutiny could limit the use and adoption of our services.

In addition, to avoid potential disclosure of confidential information to competitors, some of our customers may, in the future, ask us not to work with key products or processes, which could limit our revenue opportunities.

We generate a significant portion of our revenues from a limited number of customers, and a large percentage of our revenues from two customers, so defaults or decreased business with, or the loss of, any one of these customers, or pricing pressure, or customer consolidation could significantly reduce our revenues or margins and negatively impact results of operations.

We recently started using third party AI/ML systems for research and development purposes.

If these third-party AI/ML systems misuse or fail to properly protect the data we input, our use of such AI systems may result in the unauthorized disclosure of sensitive, proprietary, or confidential information belonging to us or our customers.

For example, if the information we input into a third-party AI/ML system is used to train the underlying AI/ML models, such inputs could be revealed to others.

The third-party AI/ML system may also provide outputs that appear to be correct but are incomplete, inaccurate, or otherwise flawed and may lead us to make erroneous decisions or recommendations to customers, which could result in harm to our reputation and competitive position, customer loss, and legal liability.

We generate a significant portion of our revenues from a limited number of customers, and a large percentage of our revenues from one customer, so defaults or decreased business with, or the loss of, any one of these customers, or pricing pressure, or customer consolidation could significantly reduce our revenues or margins and negatively impact results of operations.

Historically, we have had a small number of large customers that contribute significant revenues.

In the year ended December 31, 2022, two customers accounted for 41% of our total revenues.

In the year ended December 31, 2023, one customer accounted for 35% of our total revenues.

We have in the past and could in the future lose a customer due to its decision not to develop or produce its own future process node or not to engage us on future process nodes.

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Consolidation among our customers could also lead to increased customer bargaining power, or reduced customer spending on software and services.

Further, new business may be delayed if a key customer uses its leverage to push for terms that are worse for us and we delay entering into the contract to negotiate for better terms, in which case revenue in any particular quarter or year may fail to meet expectations.

Also, the loss of any of these customers or the failure to secure new contracts with these customers could further increase our reliance on our remaining customers.

Further, new business may be delayed or prevented if a key customer uses its leverage to push for terms that are worse for us and we delay entering into the contract to negotiate for better terms or decide not to enter into the contract at all, in which case revenue in any particular quarter or year may fail to meet expectations and our reliance on our remaining customers could increase.

Further, if any of our key customers default, declare bankruptcy or otherwise delay or fail to pay amounts owed, or we otherwise have a dispute with any of these customers, our results of operations would be negatively affected in the short term and possibly the long term.

For example, in 2023, 2022 and 2021, we incurred expenses in the amount of $2.6 million, $1.9 million and $2.0 million, respectively, related to the arbitration with SMIC New Technology Research & Development (Shanghai) Corporation due to SMIC’s failure to pay fees due to us under a series of contracts.

In early 2023, we will incur substantial additional expenses related to an arbitration hearing to resolve this matter.

In 2024, we may continue to incur substantial additional expenses related to an arbitration hearing to resolve this matter.

The loss of revenue from any of our key customers would cause significant fluctuations in results of operations because our expenses are fixed in the short term and it takes us a long time to replace customers or reassign resources.

If we do not continuously meet our development milestones of key research and development projects or successfully commercialize our Design-for-Inspection system, our future market opportunity and revenues will suffer, and our costs may not be recouped.

If we do not continuously meet our development milestones of key research and development projects or successfully commercialize our DFI system, our future market opportunity and revenues will suffer, and our costs may not be recouped.

We have invested significantly in the design and development of our eProbe tool and related IP.

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Also, if the results of our DFI system, including new applications, are not as we expect, we may not be able to successfully commercialize this system or such applications on schedule, or at all, and we may miss the market opportunity and not recoup our investment.

Further, our eProbe tool could cause unexpected damage to wafers or delay processing wafers, which we could be liable for, or which could make customers unwilling to use it.

Further, our eProbe tool could cause unexpected damage to wafers or delay processing wafers, which we could be liable for, or which could make customers unwilling to use the tool.

If we are not able to create significant interest and show reliable and useful results without significant damage to wafers, our investment may not be recouped and our future results may suffer.

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We are required to comply with export controls and economic sanctions laws and regulations that restrict selling, shipping, or transmitting our products and services and transferring our technology outside the United States.

requirements also restrict domestic release of software and technology to foreign nationals.

These requirements also restrict domestic release of software and technology to foreign nationals.

In addition, we are subject to customs and other import requirements that regulate imports that are important for our business.

If we fail to comply with the U.S.

Export Administration Regulations or other U.S.

Export Administration Regulations (“EAR”) or other U.S.

export or economic sanctions laws and regulations (collectively, “Export Regulations”), we could be subject to substantial civil and criminal penalties, including fines for the Company and the possible loss of the ability to engage in exporting and other international transactions.

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Congress and regulators continue to consider significant changes in laws and regulations.

For example, the U.S.

government is reportedly considering whether and/or how to impose restrictions directly on cloud-hosted services and further restrictions directly on U.S.

person activity.

We cannot predict the impact that additional legal changes may have on our business in the future.

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Further, some of our manufacturing customers’ business is largely dependent on customers that use our manufacturing customer as a second or third source.

If those customers consolidate and/or otherwise move the orders to manufacturing facilities not covered by our contracts, or suspend their manufacturing at covered facilities for any reason, including consolidation, our Integrated Yield Ramp revenue will continue to decrease, which could negatively affect our financial results.

customers consolidate and/or otherwise move the orders to manufacturing facilities not covered by our contracts, or suspend their manufacturing at covered facilities for any reason, including consolidation, our Integrated Yield Ramp revenue will continue to decrease, which could negatively affect our financial results.

Further, reduced demand for semiconductor products or protectionist policies like those stemming from the complex relationships among China, Hong Kong, Taiwan, and the United States has from time to time decreased and may continue to decrease the volume of wafers and, in some cases, products our customers are able to make or sell, which would also decrease our Integrated Yield Ramp revenue.

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Since we currently work on a small number of large projects at specified manufacturing sites and, in some cases, on specific IC products, our results of operations have been and may continue to be adversely affected by negative changes at those sites or in those products, including slowdowns in manufacturing due to external factors, such as U.S.

trade restrictions, rising inflation and global interest rates, the impact of the on-going COVID-19 pandemic, or continued or worsening supply chain disruptions.

trade restrictions, rising inflation and global interest rates, or continued or worsening supply chain disruptions.

Also, if wafer orders from sites covered by our contracts are not secured by our customers, if an end product does not achieve commercial viability, if a process line or, in some cases, a specific product, does not achieve significant increases in yield or sustain significant volume manufacturing during the time we receive royalties, revenues associated with such volumes or products would be negatively impacted.

This could significantly reduce our Integrated Yield Ramp revenue and our results of operations could fail to meet expectations.

In addition, if we

work with two directly competitive manufacturing facilities or products, volume in one may offset volume, and thus any of our related revenue, in the other facility or product.

In addition, if we work with two directly competitive manufacturing facilities or products, volume in one may offset volume, and thus any of our related revenue, in the other facility or product.

We acquired an early-stage battery-solutions provider and have been investing in research and development for new products and services beyond our traditional semiconductor focus, and it could take a long time to reach market acceptance and recoup our costs, if at all.

In July 2023, we acquired Lantern Machinery Analytics, Inc., an early-stage company providing products and services for battery manufacturers, which is beyond our traditional semiconductor focus.

We have also invested in research and development to expand the application of our existing products and services to battery manufacturers.

If we do not create products and services battery manufacturers desire, we may not be able to successfully commercialize our solutions for battery manufacturing on schedule, or at all.

In this case, we may miss the market opportunity, which would mean lower sales than we expect, the loss of our investments in battery manufacturing solutions, which would mean lower earnings.

Our success depends upon our ability to effectively plan and manage our resources and restructure our business through rapidly fluctuating economic and market conditions, which actions may have an adverse effect on our financial and operating results.

Our ability to successfully offer our products and services in a rapidly evolving market requires an effective planning, forecasting, and management process to enable us to effectively scale and adjust our business and business models in response to fluctuating market opportunities and conditions, which has and could continue to require us to increase headcount, acquire new companies or engage in restructurings from time to time.

For example, while we have increased investment in our business by increasing headcount, acquiring companies, and increasing our investment in R&D, sales and marketing, and other parts of our business from time to time, at other times we have undertaken restructuring initiatives to reduce expenses and align our operations with evolving business needs.

Our ability to successfully offer our products and services in a rapidly evolving market requires an effective planning, forecasting, and management process to enable us to appropriately scale and adjust our business and business models in response to fluctuating market opportunities and conditions, which has in the past and could in the future continue to require us to increase headcount, acquire new companies or engage in restructurings from time to time.

For example, while we have increased investment in our business by increasing headcount, acquiring companies, and increasing our investment in research and development, sales and marketing, and other parts of our business from time to time, at other times we have undertaken restructuring initiatives to reduce expenses and align our operations with our evolving business needs.

Some of our expenses related to such efforts are fixed costs that cannot be rapidly or easily adjusted in response to fluctuations in our business or headcount.

Rapid changes in the size, alignment or organization of our workforce, including sales account coverage, could adversely affect our ability to develop and deliver products and services as planned or impair our ability to realize our current or future business and financial objectives.

Our ability to achieve the anticipated cost savings and other benefits from restructuring initiatives within the expected time frame is subject to many estimates and assumptions, which are subject to significant economic, competitive and other uncertainties, some of which are beyond our control.

If these estimates and assumptions are incorrect, if we are unsuccessful at implementing changes, or if other unforeseen events occur, our business and results of operations could be adversely affected

Our business may be impacted by geopolitical events and uncertainties, war, terrorism, or other business interruptions beyond our control.

Geopolitical uncertainties, including relations between the United States and each of China and Russia, war, terrorism, or other business interruptions could cause damage to, disrupt, or cancel sales of our products and services on a global or regional basis, which could have a material adverse effect on our business or vendors with which we do business.

Our ability to capitalize on the market opportunity and achieve cost savings and other benefits from restructuring initiatives within the expected time frame requires significant management input and leadership and is subject to many estimates and assumptions, which are subject to significant economic, competitive and other uncertainties, some of which are beyond our control.

If these estimates and assumptions are incorrect, and we are unsuccessful at implementing changes, or if other unforeseen events occur, our business and results of operations could be adversely affected.

Our business may be negatively impacted by social, political, geopolitical, economic instability, unrest, war, terrorism, or other circumstances that could interrupt our business operations, which could cause us to lose sales or delay or be unable to fulfill contractual commitments, which may have an adverse effect on our financial and operating results.

Our business operations may be negatively impacted by social, political, economic instability, unrest, war, terrorism, or other circumstances in a region in which we operate.

Such events may result in restrictions, curfews, or other actions and give rise to significant changes in regional and global economic conditions and cycles, which may adversely affect our financial and operating results.

Further geopolitical uncertainties, including relations between the United States and each of China and Russia, between Israel and Palestine, social activism, economic instability, war, terrorism, or other circumstances that interrupt our ability to conduct business could cause damage to, disrupt, or cancel sales of our products and services on a global or regional basis, which could have a material adverse effect on our business or vendors with which we do business.

Due to the significance of our China market for our profit and growth, we are exposed to risks in China, including the risks mentioned elsewhere and the following:

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escalating U.S.-China tension and increasing political sensitivities in China;

and unexpected governmental regulations and restrictions in China as a result of renewed or increased efforts to contain the COVID-19 pandemic, which could negatively impact our local operations.

the effects of China government funding in the development of domestic solutions and customer preference for domestic suppliers creating additional competition in China;

and unexpected governmental regulations and restrictions in China as a result of renewed efforts to contain the COVID-19 pandemic, which could negatively impact our local operations.

Such events could also make it difficult or impossible for us to deliver products and services to our customers.

In addition, territorial invasions can lead to cybersecurity attacks on technology companies, such as ours, located far outside of the conflict zone.

In the event of prolonged business interruptions or negative broad economic and security conditions due to geopolitical events, we could incur significant losses, require substantial recovery time, and experience significant expenditures in order to resume our business operations.

We do not have a business continuity plan developed to account for all continuity risks (please see Item 1C.

Cybersecurity for more information about our cybersecurity risk management program).

In the event of prolonged business interruptions or negative broad economic and security conditions due to political, geopolitical events, we could incur significant losses, require substantial recovery time, and experience significant expenditures in order to resume our business operations.

In addition, our insurance policies typically contain a war exclusion of some description and we do not know how our insurers are likely to respond in the event of a loss alleged to have been caused by geopolitical uncertainties.

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Uncertainty about global economic conditions including war, terrorism, geopolitical uncertainties and other business interruptions could result in damage to, disruption, postponement or cancellation of sales of our products or services on a global or regional basis.

Furthermore, tighter credit, higher interest rates, inflationary concerns, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors could have a material adverse effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition and/or vendors with which we do business.

For example, the timing of the build-out of the semiconductor market in China depends significantly on governmental funding on both local and national levels and a delay in this funding could negatively affect

our revenues.

Furthermore, tighter credit, higher interest rates, inflationary concerns, large-scale unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors could have a material adverse effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition and/or vendors with which we do business.

Further, any economic and political uncertainty caused by the United States tariffs imposed on goods from China or enhanced U.S.

export regulations relating to China, among other potential countries, and any corresponding tariffs from China or such other countries in response, may negatively impact demand and/or increase the cost for our products.

Similarly, the on-going COVID-19 pandemic in China or in other nations has and may continue to cause a slowdown in the global economy and demand for our products and services.

Further, the semiconductor industry historically has been volatile with up cycles and down cycles, due to sudden changes in customers’ manufacturing capacity requirements and spending, which depend in part on capacity utilization, demand for customers’ IC products by consumers, inventory levels relative to demand, and access to affordable capital.

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Any of these events could negatively affect our revenues and make it challenging or impossible for us to deliver products and services to our customers forecast our operating results, make business decisions, and identify the risks that may affect our business, financial condition and results of operations.

Customers with liquidity issues may also lead to additional bad debt expense.

Supply-chain disruptions could impact our ability to build additional hardware tools or meet customer deadlines.

Disruptions to our supply chain may significantly increase our component costs and could impact our ability to build additional hardware tools, which would decrease our sales, earnings, and liquidity or otherwise adversely affect our business and result in increased costs.

Such a disruption could occur as a result of any number of events, including, but not limited to:

rising inflation and global interest rates increasing component costs, a closure or slowdown at our suppliers’ plants or shipping delays including, for example, those made to combat the spread of COVID-19, market shortages for critical components, increases in prices, the imposition of regulations, quotas, embargoes or tariffs on components or our products, labor stoppages or shortages, supply chain disruptions, third-party interference, cyberattacks, severe weather conditions including the adverse effects of climate change-related events, geopolitical developments, war or terrorism, and disruptions in utilities and other services.

In addition, the development, licensing, or acquisition of new products in the future may increase the complexity of supply chain management.

Failure to effectively manage our supply of components and products could adversely affect our business.

Customers with liquidity issues may also lead to additional credit losses.

We face challenges in providing a comprehensive solution outside of the semiconductor industry due to limitations on the business areas in which we can use current third-party licensed technology, which may make it prohibitively expensive to sell our solution for applications outside of our traditional industry.

Since our software requires certain third-party programs to run as intended and some of our contracts with licensors limit the industry in which we can resell such third-party programs, we face challenges to provide a comprehensive solution to battery manufacturers.

If we or our customers are unable to procure required third-party programs that can be used in connection with our products for battery manufacturing, or the cost to do so is higher than expected, we may miss the market opportunity, which would mean lower sales than expected, or our costs may be higher, which would mean lower earnings than expected.

Risks Related to Our Technology

If we fail to protect our intellectual property rights, customers or potential competitors may be able to use our technologies to develop their own solutions, which could weaken our competitive position, reduce our revenues, or increase our costs.

If we fail to protect our IP rights, customers or potential competitors may be able to use our technologies to develop their own solutions, which could weaken our competitive position, reduce our revenues, or increase our costs.

Our success depends largely on the protection of our proprietary technology.

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Our internal information system is expensive to expand and must be highly secure due to the sensitive nature of our customers’ information that we transmit.

Building and managing the support necessary for our growth places significant demands on

our management and resources.

Building and managing the support necessary for our growth places significant demands on our management and resources.

These demands may divert these resources from the continued growth of our business and implementation of our business strategy.

We rely on service providers to enable key services to our customers, including for cloud services, enterprise software, customer support portal software, and co-location computing facilities and have experienced in the past, and may experience in the future, interruptions in our information systems on which our global operations depend or unplanned downtime of the infrastructure that delivers our SaaS.

Such an unplanned interruption, even if temporary, could stop SaaS customers from accessing their hosted data or on-premise customers from downloading licensed software or critical security patches, or from accessing our support portal, which could mean that we may not meet our contractual commitments for such services to customers, which could reduce our revenue or result in damage to our reputation and negatively impact future sales.

Further, the information technology and infrastructure that stores and processes our and our customers’ data is susceptible to continually evolving cybersecurity threats that become more complex over time and may not be recognized until launched against a target, all of which could result in unauthorized access to, or acquisition of, our data, and interruption or disruption of our business.

Bad actors may make increased use of widely available access to generative AI technology, such as ChatGPT, for more sophisticated and frequent cyber-attacks or fraudulent impersonations against us.

These attacks could come from either Advanced Persistent Threat actors or other individual organized or unorganized malicious actors.

The expense to purchase, update, and configure security information systems to detect and/or neutralize increasingly complex and sophisticated attacks may increase our costs and, failure to acquire the right expertise or systems may leave us vulnerable to attacks, which could expose our confidential or competitive information or that of our customers, which could expose us to liability and have a negative impact on our reputation and business opportunity.

We rely on third-party service providers to enable key services to our customers, including for cloud services, enterprise software, customer support portal software, and co-location computing facilities.

We have experienced in the past, and may experience in the future, interruptions in our information systems on which our global operations depend or unplanned downtime of the infrastructure that delivers our SaaS.

Such an unplanned interruption, even if temporary, could stop SaaS customers from accessing their hosted data or on-premise customers from downloading licensed software or critical security patches, or from accessing our support portal, which could mean that we may not meet our contractual commitments for such services to customers, which could reduce our revenue, incur liability, or result in damage to our reputation and negatively impact future sales.

Further, the information technology and infrastructure that stores and processes our and our customers’ data is susceptible to continually evolving cybersecurity threats that become more

complex over time, especially with the rapid evolution of AI technologies, and may not be recognized until launched against a target, all of which could result in unauthorized access to, or acquisition of, our data, and interruption or disruption of our business.

We and our third-party service providers, with whom we may share data, may be unable to anticipate these techniques or may not implement adequate preventative measures to prevent either unauthorized access to our systems or services that could compromise customer data or other confidential information or result in a disruption of our services.

In particular, our industry is often the target of cyber-attacks by third parties seeking unauthorized access to confidential or sensitive data, including customer confidential information, or to disrupt our ability to provide services from a broad range of threat actors, including foreign governments, criminals, competitors, computer hackers, cyber terrorists and politically motivated groups or individuals.

The security measures we have integrated into our internal systems, SaaS, and software products, which are designed to detect unauthorized intrusions or activity and prevent or minimize security breaches, may not function as expected or may not be sufficient to protect our internal networks, SaaS, and software products against certain attacks and other security incidents and attacks of varying degrees from time to time.

In particular, like our peers, we are often the target of cyber-attacks by third parties seeking unauthorized access to confidential or sensitive data, including customer confidential information, or to disrupt our ability to provide services from a broad range of threat actors, including foreign governments, criminals, competitors, computer hackers, cyber terrorists and politically motivated groups or individuals.

To date, we have not incurred any material costs from these attacks.

The security measures we have integrated into our internal systems, SaaS, and software products, which are designed to detect unauthorized intrusions or activity and prevent or minimize security breaches, vary in maturity across our business and may not function as expected or may not be sufficient to protect against certain attacks.

Additionally, we may not have sufficient audit logs to fully understand the nature of a cyber-attack.

In some cases, we do not have contracts to provide legal protection or recourse for breaches of our security protections, which may increase our exposure to expenses related to such attacks and negatively impact our results.

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If we fail to have adequate controls or safeguards, the security of our internal networks, electronic systems, or physical facilities could be compromised, which could result in significant legal and financial exposure, a loss of confidence in the security of our SaaS and other software products, interruptions, or malfunctions in our operations, account lock outs, and, ultimately, harm to our business, financial condition and results of operations.

We face information technology security and fraud risks due to continued support of our employee’s remote or hybrid work environment, which may create additional information security vulnerabilities and/or magnify the impact of any disruption in our information technology systems.

Our increased reliance on work-from-anywhere technologies and even our employees’ expanded reliance on company-approved bring-your-own-mobile-devices may increase the risk of cybersecurity or data breaches from possible circumvention of security and monitoring systems, denial-of-service attacks or other cyber-attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, employee or insider error, malfeasance, social engineering, deep-fake impersonations, physical breaches, or other actions.

Our insurance policies may not cover losses incurred in the event our systems or data are comprised, and they are subject to retention amounts that could be substantial.

Moreover, we cannot be certain that such insurance policies will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.

Many of our customers and our technical partners require us to complete annual vendor security assessments which may include a requirement to complete information security self-assessments, third-party assessments, or obtain independent certifications from standards organizations.

Any exception of controls found during such assessments or certification, especially if published in a report such as for SOC 2 Type 2, may need to be disclosed to a large number of customers and potential customers.

Such publication of controls weaknesses could cause customers to re-evaluate their purchasing or renewal decisions, which could cause us to lose sales and, as a result, have lower earnings than expected.

Part of our business includes the acquisition of other companies which involves the integration of various business processes, technologies, and data systems.

While such acquisitions offer strategic opportunities for growth and diversification, they also expose us to cybersecurity risks that may arise during the integration process and thereafter.

Challenges in integrating information technology systems and networks may create vulnerabilities and expose the organization to unauthorized access and data breaches.

The transfer and consolidation of sensitive information during acquisitions heighten data security and privacy concerns, potentially leading to regulatory compliance issues and reputational damage.

Third-party relationships established by the acquired company introduce additional cybersecurity risks if not properly assessed and mitigated.

Moreover, cultural differences, compliance obligations, and resource constraints further complicate the effective management of cybersecurity risks associated with acquisitions, potentially impacting the organization's financial performance and reputation.

If we experience a security event, we may have to conduct an investigation and notify individuals, customers, partners, service providers and state, federal and local governmental authorities and regulators in the U.S.

and elsewhere around the globe.

Accordingly, security events could lead to significant costs and fees for legal advice, investigation support,

remediation, and result in legal risk exposure, damage and harm to our reputation, and impact on our ability to keep and attract customers.

Accordingly, security events could lead to significant costs and fees for legal advice, investigation support, remediation, and result in legal risk exposure, damage and harm to our reputation, and impact on our ability to keep and attract customers.

We and our customers are subject to laws and regulations concerning data privacy, data security, consumer protection, and advertising and these laws and regulations are continually evolving, which exposes us to potential material risks.

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The impact of these laws and regulations may disproportionately affect our business in comparison to our peers in the technology sector that have greater resources.

Our technologies could infringe the intellectual property rights of others, causing costly litigation and the loss of significant rights.

Significant litigation regarding intellectual property rights exists in the semiconductor industry.

It is possible that a third party may claim that our technologies infringe their intellectual property rights or misappropriate their trade secrets.

which has happened in the past.

Our technologies could infringe the IP rights of others, causing costly litigation and the loss of significant rights.

Significant litigation regarding IP rights exists in the semiconductor industry.

It is possible that a third party may claim that our technologies infringe their IP rights or misappropriate their trade secrets, which has happened in the past.

Any claim, even if without merit, could be time consuming to defend, result in costly litigation, require us to enter into royalty or licensing agreements, which may not be available to us on acceptable terms, or at all, subject us to damages or injunctions restricting our sale of products, invalidate a patent or family of patents, require us to refund license fees to our customers or to forgo future payments or require us to redesign certain of our products, any one of which could adversely affect our sales opportunities, expenses, and revenues.

Competition in the market for data analytics and related systems and services may intensify in the future, which could impede our ability to grow or execute our strategy.

We currently face indirect competition from the internal groups at IC companies and direct competition from providers of (i) yield management and/or prediction systems, such as KLA, Siemens AG (“Siemens”), Onto Innovation, Inc.

(“Onto”), and Synopsys, Inc.

(“Synopsys”);

(ii) semiconductor manufacturing software, such as Applied Materials, Inc., Synopsys, Invantest, Inc., NI, Inc., Onto, and Siemens;

(iii) inline inspection, metrology and electrical test equipment providers, such as ASML, Applied Materials, KLA, and Keysight Technologies, Inc.;

and, (iv) connectivity software or integration products/services supporting factory connectivity or control needs of customers, such as PEER Group, Inc., Kontron AIS, GmbH, Yokogawa Electric Corp., Advantest, and Kornic Automation Co.

There may be other providers of competitive commercial solutions of which we are not aware and we may compete with the products or offerings of these named companies or additional companies if we expand our offerings through acquisitions or development.

example, since our acquisition of Cimetrix Incorporated in late 2020, we now face competition in the products/services supporting the connectivity, control and integration of factory equipment.

The demand for solutions that address the need for better integration between the silicon design and manufacturing processes may encourage direct competitors to enter our market.

For example, in 2020, Synopsys, Inc.

acquired Qualtera and NI, Inc.

acquired Optimal+, and have increased marketing and pricing competition with us.

This competition in our market may intensify in the future, which could lead to increased pricing pressure, negative impacts on our revenues, or a decreased ability to grow or execute our strategy.

Also, our current and potential customers may choose to develop their own solutions internally, particularly if we are slow in deploying our solutions or improving them to meet market demands.

These and other competitors may be able to operate with a lower cost structure, which would give any such competitor’s products a competitive advantage over our solutions.

Our industry is marked by rapid technological developments and innovations (such as the use of AI and ML) and evolving industry standards.

If we are unable to innovate quickly enough to keep pace with our competitors in incorporating such technological developments in our product offerings, our business could be harmed.

See the discussion in “Competition” in Part 1, Item 1.

“Business” section for more information about our current competitors.

There may be other competitors of which we are not aware, and we may compete with the products or offerings of our existing competitor companies or additional companies if we expand our offerings through acquisitions or development.

The demand for solutions that address the need for better integration between the silicon design and manufacturing processes may encourage new direct competitors to enter our market.

Increased competition could lead to increased pricing pressure, negatively impacting our revenues, or a decreased ability to grow or execute our strategy.

Also, our current and potential customers may choose to develop their own solutions internally, particularly if we are slow in deploying our solutions or improving them to meet market needs.

These and other competitors may be able to operate with a lower cost structure than our engineering organization, which would give any such competitor’s products a competitive advantage over our solutions.

Generative AI and the user other advanced AI technologies for software development may subject us to claims of misappropriation of others’ IP, bugs/errors, and ambiguous ownership of created content.

Uncertainty around new and emerging AI applications such as generative AI content creation may require additional investment to protect our proprietary datasets, ML models, and systems to test for accuracy, bias and other variables, which may be costly and could impact our profit margin if we decide to expand generative AI into our product offerings.

Developing, testing, and deploying secure and reliable AI systems and tested software made using such AI systems may also increase the cost profile of our offerings.

We would be liable for any inaccuracies or errors in software that we release that causes downtime or other damage to our customers’ facilities or production lines, which could greatly increase our expenses and decrease our earnings.

Risks Related to Our Operations

Measurement of our variable consideration requires data collection and customers’ use of estimates in some cases and is subject to customers’ agreement and is later offset if actual data differ from customers’ estimates, which can result in uncertainty and cause quarterly results to fluctuate.

Measurement of our variable consideration sometimes require data collection and customers’ use of estimates and are contingent upon customers’ consent and may be later offset if actual data differ from customers’ estimates, which can result in uncertainty and cause quarterly results to fluctuate.

We can only recognize volume- or average selling price- (“ASP”) based royalties once we have reached agreement with our customers on their level of yield performance improvements or ASP and quarterly agreements are sometimes based on estimates of volume results or ASP for each quarter.

Measuring the amount of yield improvement is inherently complicated and dependent on our customers’ internal processes and certain non-public information.

Measuring the amount of yield improvement is inherently complicated and dependent on our customers’ internal processes and on certain non-public information that may not be directly available to us.

Thus, there may be uncertainty as to some components of measurement or calculation.

Also, some variable consideration can be highly susceptible to delays in the customer measurement of key factors such as reporting volumes results and level of yield or ASP.

Also, some variable consideration can be highly susceptible to delays in our customers’ measurement of key factors such as reporting volumes results and level of yield or ASP.

Therefore, we may have to estimate revenue related to contingent variable fees or usage- or sales-based royalties prior to the receipt of performance reports, such as royalty acknowledgements, or other related information from customers.

These estimates are subject to judgment to evaluate whether it is probable that a significant revenue reversal will not occur in future periods, which could result in our recognition of less Integrated Yield Ramp revenue than expected that may later be offset when actual results become available.

We have customers with past due balances and our failure to collect a significant portion of such balances could adversely affect our cash, require us to write-off receivables, or increase our expense or bad debt allowance.

If our customers fail to pay receivable balances when due, our cash will decrease and we may have to incur additional expenses in an attempt to collect it, write-off a portion or all of such receivables, or increase our bad debt allowance.

Our accounts receivable balance, net of reserves, was $42.2 million and $40.1 million as of December 31, 2022, and 2021, respectively.

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

Unbilled accounts receivable that are not expected to be billed and collected during the succeeding 12-month period are recorded in other non-current assets and totaled $0.8 million and $1.3 million as of December 31, 2022 and 2021, respectively.

Three customers accounted for 53% of our gross accounts receivable as of December 31, 2022, and two customers accounted for 44% our gross accounts receivable as of December 31, 2021.

The total accounts receivable reserve was $0.9 million as of December 31, 2022 and 2021.

If our customers fail to pay receivable balances when due, our cash will decrease and we may have to incur additional expenses in an attempt to collect such receivables, to write-off a portion or all of such receivables, or to increase our expense or allowance for credit losses.

Our accounts receivable balance, net of allowance for credit losses, was $44.9 million and $42.2 million as of December 31, 2023 and 2022, respectively.

Unbilled accounts receivable, included in

accounts receivable, totaled $16.4 million and $13.5 million as of December 31, 2023 and 2022, respectively.

Unbilled accounts receivable that are not expected to be billed and collected during the succeeding twelve-month period are recorded in other non-current assets and totaled $1.1 million and $0.8 million as of December 31, 2023 and 2022, respectively.

Two customers accounted for 50% of our gross accounts receivable as of December 31, 2023, and three customers accounted for 53% of our gross accounts receivable as of December 31, 2022.

The total allowance for credit losses was $0.9 million as of December 31, 2023 and 2022.

We generally do not require collateral or other security to support accounts receivable.

Despite the financial ability of these customers to pay for on-going services by PDF under valid contracts, customers may delay payments.

Our allowances for potential credit losses, if any, could be insufficient, and we may need to adjust our allowance for doubtful accounts from current estimates or write-off receivables depending on such claims in the future.

Our allowances for potential credit losses, if any, could be insufficient, and we may need to adjust our allowance for credit losses from current estimates or write-off receivables depending on such claims in the future.

If we are forced to pursue legal remedies to collect receivables, our expenses could rise significantly and our business relationship and future business with these customers could suffer.

The on-going COVID-19 pandemic has significantly affected how we and our customers operate and could continue to adversely impact our future results of operations and overall financial performance.

The COVID-19 pandemic continues to affect how we and our customers operate our businesses.

For example, most U.S.

states and countries worldwide imposed, restrictions on the physical movement of our employees, partners, and customers to limit the spread of COVID-19.

Our US headquarters and R&D facility and offices in Canada, France, Japan and Korea experienced temporary closures.

In addition, our personnel worldwide have also been subject to various country

to country travel restrictions, which limit our ability to provide services to customers at their facilities.

These impacts have disrupted our normal operations.

If the COVID-19 pandemic has a substantial impact on our employees’ productivity, our results of operations and overall financial performance may be harmed.

Moreover, the conditions caused by the COVID-19 pandemic could adversely affect our customers’ ability or willingness to purchase our products or services, delay prospective customers’ purchasing decisions, adversely impact our ability to provide or deliver products and on-site services to our customers, delay the provisioning of our offerings, lengthen payment terms, reduce the value or duration of their subscriptions, or affect attrition rates, all of which could adversely affect our future sales, operating results and overall financial performance.

For example, we believe the lack of in-person interactions during most of 2020, 2021, and 2022 made it harder for us to sell complex or new technologies to such customers during these periods.

The duration and extent of the continuing impact from the COVID-19 pandemic depends on future developments that remain difficult to predict, such as the severity and transmission rate of the virus and variants thereof, the extent and effectiveness of containment actions, including the availability and effective distribution of vaccines, and the impact of these and other factors on our employees, customers, partners and vendors.

If we are not able to respond to and manage the impact of such events effectively, or if the macroeconomic conditions of the general economy continue to worsen or the industries in which we operate are negatively impacted over the long-term, our business, operating results, financial condition and cash flows could be adversely affected.

We face operational and financial risks associated with international operations that could negatively impact our revenues.

In recent years, we have derived over half of our revenues from sales outside of the United States, and we expect our international business to continue to grow.

In recent years, we have derived nearly half of our revenues from sales outside of the United States, and we expect our international business to continue to grow.

We have in the past expanded and reorganized, at different times, our operations, including international operations, and may in the future continue such expansions or reorganizations by establishing or restructuring international subsidiaries, offices, or contractor relationships in locations, if and when, deemed appropriate by our management.

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● ineffective or inadequate protection or enforcement of our IP in foreign jurisdictions;

● greater difficulty in collecting account receivables resulting in longer collection periods, bad debt, and increased costs to collect;

● greater difficulty in collecting account receivables resulting in longer collection periods, credit losses, and increased costs to collect;

● language and other cultural differences may inhibit our sales and marketing efforts and create internal communication problems between our U.S.

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● additional taxes, interest, and potential penalties, and uncertainty around changes in tax laws of various countries;

● geopolitical instability or changes in government could disrupt our operations or our customers’ purchases or operations or those of related supply chain participants;

● geopolitical instability or changes in government, including in the United States of America, could disrupt our operations or our customers’ purchases or operations or those of related supply chain participants;

● quarantine, travel restrictions, or business disruptions in regions affecting our operations, stemming from actual, imminent or perceived outbreaks of contagious diseases, including COVID-19;

● economic or political instability, including but not limited to armed conflict, terrorism, interference with information or communication of networks or systems, including strained or worsening relations between the United States and China, occupation or war involving Russia and Ukraine, and the resulting disruption to economic activity and business operations.

Further, our employees and contractors include professionals located in various international locations, including Shanghai, China and Ramallah, Palestine, and Taiwan who provide software-related development, quality assurance, maintenance, and other technical support services for certain of our software products.

● economic or political instability, including but not limited to armed conflict, terrorism, interference with information or communication of networks or systems, including strained or worsening relations between the United States and China, occupation or war involving Russia and Ukraine and most recently between Israel and Hamas, and the resulting disruption to economic activity and business operations.

Further, our employees and contractors include professionals located in various international locations, including Shanghai, China and Ramallah, Palestine, and Israel, and Taiwan who provide software-related development, quality assurance, maintenance, and other technical support services for certain of our software products.

Conflicts in these regions or impacting these regions, or policy changes, including policies covering export controls, that affect these or other international operations could disrupt or limit the work our employees and contractors perform and may negatively affect the range of services we are able to provide or our cost for such services.

The on-going COVID-19 pandemic has affected the manufacturing and shipment of goods.

From time to time since the start of the pandemic in 2020, our offices around the world have been temporarily shut down and restrictions have limited the ability of our local employees to travel to customer sites or visit our other offices.

An extended closure of our customers’ plants due to a resurgence of COVID-19 or its variants could adversely impact our business.

In addition, our global operations are subject to numerous U.S.

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A significant violation could significantly negatively impact our sales opportunities, operations, and financial results.

Even if our operations and ability to deliver products and services to customers in China and elsewhere are not significantly negatively impacted by such changing regulations, our customers in China and elsewhere may decide to use only local vendors as a precaution.

Some companies in China have indicated to us that they have decided to use only local vendors as a precaution.

If more companies respond to changing regulations by using local vendors, then our operations and ability to deliver products and services to customers in China and elsewhere could be significantly negatively impacted.

In such case, our expected international business may be slower than expected or not materialize at all, in which case, our sales opportunities, operations, and financial results would suffer.

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Administration views technology as a domain of strategic competition in which the U.S.

and its allies must stay ahead of China and has identified semiconductor, artificial intelligence, 5G technologies, and the protection of U.S.

and its allies must stay ahead of China and has identified semiconductor, AI, 5G technologies, and the protection of U.S.

supply chains as priority efforts.

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government and each of the Chinese and Russian governments in trade and security matters or the perception of that tension could lead to further disruptions or reductions in international trade, deter or prevent customer purchasing activity, and may negatively impact our financial results.

Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to environmental, social and governance matters that could expose us to numerous risks.

We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC, the Nasdaq Stock Market and FASB.

These rules and regulations continue to evolve in scope and complexity and many new requirements have been created in response to laws enacted by Congress, making compliance difficult and uncertain.

In addition, increasingly regulators, customers, investors, employees and other stakeholders are focusing on environmental, social and governance (“ESG”) matters and related disclosures.

Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to ESG matters that could expose us to numerous risks.

We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC, the Nasdaq Stock Market, and the Financial Accounting Standards Board (“FASB”).

These rules and regulations continue to evolve in scope and complexity and many new requirements have been created in response to laws enacted by U.S.

Congress, making compliance difficult and uncertain, including a new rule effective in late 2023 that requires us to report to the SEC all material cyber security incidents through the filing of a Form 8-K.

In addition, increasingly regulators, customers, investors, employees, and other stakeholders are focusing on ESG matters and related disclosures.

These changing rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations.

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If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG goals on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected.

Provision of certain of our data services relies on installing, configuring, and operating proprietary configuration of hardware and software systems located in third-party facilities and errors affecting such facilities’ operations could lead to liability for us, and any objection from such third-party facility or delay in providing us physical or logical access to our systems may adversely impact our ability to timely perform our contract obligations or lead to confidentiality, integrity, availability, security, or privacy controls exceptions.

In connection with our data services offerings, we rely on installing, configuring, and operating proprietary configurations of hardware and software systems in facilities owned and operated by third parties around the world.

If the third-party facility owner/operator does not allow us to install, access and maintain, or otherwise operate as intended these systems, we may not timely fulfill our contractual obligations to, or expectations of, our customers.

Also, any intentional or unintentional disruption of the operation of these proprietary systems may lead to customer dissatisfaction, which could cause us to lose future bookings and reduce revenue and negatively impact our earnings.

Additionally, any potential or actual malicious cybersecurity incident or accidental misconfiguration resulting in a data security incident involving these proprietary systems may require complex diagnosis and mitigation because they are located at third-party facilities and this may lead to delays, errors, lack of system availability, loss or our customers’ data integrity, or further unauthorized disclosure of customer confidential or privacy data.

Further, if our system causes downtime or other disruption or loss to such third-party facility, we could be liable for damages associated with such event, which could increase our expenses and distract management, and cause other third-party facilities to not want to work with us.

Installing and maintaining such proprietary systems around the world requires that we manage the complexity of global operations of individual installations at a large number of different third parties in various countries.

The cost and complexity of obtaining support, installing updated security patches, and addressing any other critical vulnerabilities in each individual physical system may lead to exceptions in controls of confidentiality, availability, integrity, security, and privacy, which could negatively impact the availability of our data services to customers, damage our reputation, or lead to lower bookings or sales.

federal tax reform and changes in foreign tax laws could change our tax burden and adversely affect our business and financial condition.

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Any changes in our geographical earnings mix in various tax jurisdictions, including those resulting from transfer pricing adjustments, could materially increase our effective tax rate.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was enacted in the United States.

The IR Act includes a 15% minimum tax rate, as well as tax credit incentives for reductions in greenhouse gas emissions.

The details of the computation of the tax and implementation of the incentives will be subject to regulations that have not yet been released by the U.S.

Department of the Treasury.

On August 9, 2022, the CHIPS and Science Act of 2022 (the “CHIPS

Act”) was enacted in the United States to provide certain financial incentives to the semiconductor industry, primarily for manufacturing activities within the United States.

We are continuing to monitor the IR Act and CHIPS Act and related regulatory developments to evaluate their potential impact on our business and operating results.

For further discussion of the IR Act and CHIPS Act, see Item 7.

On August 9, 2022, the CHIPS and Science Act of 2022 (the “CHIPS Act”) was enacted in the United States to provide certain financial incentives to the semiconductor industry, primarily for manufacturing activities within the United States.

On January 19, 2024 the House Ways and Means Committee passed with bipartisan support a proposed “tax bill” which would retroactively restore the three expired business tax provisions from the Tax Cuts and Jobs Act through the end of 2025, including the requirement to capitalize and amortize Section 174 research and experimentation (“R&E”) expenditures.

The provision would delay the date when taxpayers must begin capitalizing and amortizing their “domestic” R&E expenditures until taxable years beginning after December 31, 2025, while leaving the requirement to capitalize foreign research unchanged.

This change would be retroactive for taxpayers who have already filed tax returns for taxable year 2022.

The tax bill is pending vote in the House and Senate.

We are continuing to monitor the CHIPS Act and the proposed tax bill and related regulatory developments to evaluate their potential impact on our business and operating results.

For further discussion of the CHIPS Act, see Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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We have in the past devoted, and plan in the future to devote, time and resources to identifying, developing, and promoting strategic relationships with other suppliers to provide combined, integrated, or interoperable solutions to the semiconductor, electronics, and automotive industries.

For example, from July 2020 through January 2023, we announced strategic relationships or collaborations with Advantest Corporation, Siemens, Kulicke & Soffa Industries, Inc., SAP SE, and proteanTecs Ltd..

The full extent of the future impact of these strategic relationships on our financial condition and results of operations is currently unknown and the failure to reap the anticipated benefits of these companies’ financial resources, technology, customer relationships, and global footprint and/or to successfully develop combined, integrated, or interoperable solutions with such companies could have an adverse effect on our business and results of operations.

For example, from July 2020 through August 2023, we announced strategic relationships or collaborations with Advantest Corporation, Siemens, Kulicke & Soffa Industries, Inc., SAP SE, proteanTecs Ltd, and Voltaiq, Inc.

integrated, or interoperable solutions with such companies could have an adverse effect on our business and results of operations.

Our acquisitions create special risks and challenges that could adversely affect our financial results.

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We may choose to acquire new and complementary businesses, products, technologies and/or services instead of developing them ourselves.

For example, we acquired Cimetrix Incorporated (“Cimetrix”) in December 2020 for a gross purchase price of approximately $37.5 million ($31.6 million net of cash acquired) for all of its outstanding equity.

For example, we acquired Cimetrix in December 2020 for a gross purchase price of approximately $37.5 million ($31.6 million net of cash acquired) for all of its outstanding equity.

We may, however, face competition for acquisition targets from larger and more established companies with greater financial resources, making it more difficult for us to complete acquisitions.

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Further, if we become subject to liabilities as a result of an acquisition, the liabilities we incur may be substantial and the amounts of such liabilities may not be covered by and/or may exceed any liability protections.

In connection with certain acquisitions, we may agree to issue common stock, or assume equity awards, that dilute the ownership of our current stockholders, use a substantial portion of our cash resources, assume liabilities (both known and unknown), record goodwill and amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges, incur amortization expenses related to certain intangible assets, and incur large and immediate write-offs and restructuring and other related expenses, all of which could harm our financial condition and results of operations.

In connection with certain acquisitions, we have in the past and may in the future issue common stock, or assume equity awards, that dilute the ownership of our current stockholders, use a substantial portion of our cash resources, assume liabilities (both known and unknown), record goodwill and amortizable intangible assets that will be subject to impairment testing on a regular basis and potential periodic impairment charges, incur amortization expenses related to certain intangible assets, and incur large and immediate write-offs and restructuring and other related expenses, all of which could harm our financial condition and results of operations.

General Risk Factors

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Achieving this objective may be difficult due to many factors, including fluctuations in global economic and industry conditions, changes in our management or leadership, the hiring practices at our competitors or customers, cost reduction activities, and the effectiveness of our recruiting and compensation programs, including equity-based programs.

Further, we have had, and expect to continue to have, difficulty in obtaining visas permitting entry for some of our employees that are foreign nationals into the United States, and delays in obtaining visas permitting entry into other key countries, for several of our key personnel, which disrupts our ability to strategically locate our personnel.

Further, we have had, and

expect to continue to have, difficulty in obtaining visas permitting entry for some of our employees that are foreign nationals into the United States, and delays in obtaining visas permitting entry into other key countries, for several of our key personnel, which disrupts our ability to strategically locate our personnel.

In the past the United States has and, in the future, the United States may again increase the level of scrutiny in granting H-1(b), L-1, and other business visas.

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A factor in the volatility may be that our historical quarterly operating results have fluctuated.

Our future quarterly operating results will likely fluctuate from time to time and may not meet the expectations of securities analysts and investors in some future period, which could cause our stock price to decrease again.

A significant reduction in our stock price negatively impacts our ability to raise equity capital in the public markets and increases the cost to us, as measured by dilution to our existing shareholders, of equity financing.

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In addition, actions of activist shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

Unresolved Staff Comments

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 1A. Risk Factors