What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 118 added, 99 removed, 297 unchanged (42% of the section changed)

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expectations regarding global economic trends;

the impact of rising global inflation and increased interest rates, expectations regarding recent and future acquisitions;

the impact of global inflation and changed interest rates, expectations regarding recent and future acquisitions;

current semiconductor industry trends;

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the provision of technology and services prior to the execution of a final contract;

the continuing impact of macroeconomic conditions and other trends on the semiconductor industry and our operations or supply and demand for our products;

the continuing impact of macroeconomic conditions and other trends on the semiconductor industry, our customers, our operations, and supply and demand for our products;

supply chain disruptions;

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our assessment of the sufficiency of our cash resources and anticipated funds from operations;

our ability to obtain additional financing if needed and our ability to use support and updates for certain open-source software.

our ability to obtain additional financing if needed and our ability to obtain support and updates for certain open-source software.

These forward-looking statements are only predictions.

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export restrictions limit our possible business with Chinese semiconductor manufacturers on advanced nodes.

As a result of these market developments, we have chosen to focus our resources and investments in products, services, and solutions for analytics.

As a result of these market developments, we have chosen to focus our resources and investments in products (including differentiated data), services, and solutions for analytics.

There are other global or business trends that may affect our business opportunities generally as follows:

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The strength of demand for semiconductor products has varied by region and product segment.

For example, demand for graphical processing unit products is strong, while demand for smart phones remains weak.

With high inventories and soft demand, semiconductor fab utilization rates are also low and semiconductor capital equipment orders have been impacted for some vendors and market segments.

As a result of these trends, customers are being cautious with their spend and some purchase cycles are lengthening and other purchase decisions are being delayed, particularly with respect to larger deals.

For example, demand for artificial intelligence (“AI”) processing unit products is strong, while demand for smart phones remains weak.

With high inventories and soft demand, some semiconductor fab utilization rates are also low and semiconductor capital equipment orders have been impacted for some vendors and market segments.

As a result of these trends, customers are being cautious with their spend and some

purchase cycles are lengthening and other purchase decisions are being delayed, particularly with respect to larger deals.

● Changing export controls and sanctions .

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government has issued a series of rules and guidance, with significant relevance to the P.R.C.

market, adding novel and complex export control restrictions, clarifications and corrections, and requests for further public comment.

market, adding novel and complex export control restrictions, including on some non-U.S.

items, and on some U.S.

person activities in certain cases, clarifications and corrections, and requests for further public comment.

government regulatory agendas indicate that several additional rules are now in development to further control certain items, restrict U.S.

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person assistance to develop a high-end integrated circuit sought by the military.

The proposed regulations are complicated, would reach into commercial supply chains, and would be challenging to interpret.

The proposed regulations, which are not yet final and issued, are complicated, would reach into commercial supply chains, and would be challenging to interpret.

government policy and regulation remain fluid and uncertain, and could in the future impact segments of our business.

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For example, the P.R.C.

has imposed restrictions on imports of certain memory ICs offered by U.S.

has imposed restrictions on imports of certain memory integrated circuits (“ICs”) offered by U.S.

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

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Recipients of funding under such programs may be required to agree to separate restrictions on certain commercial activity in the P.R.C., where we currently commercially operate.

If our customers engage us for projects funded by these programs, we will evaluate all restrictions, and their impact on our existing business, before entering into any contracts associated with these programs.

If our customers engage us for projects funded by these programs, we will evaluate

all restrictions, and their impact on our existing business, before entering into any contracts associated with these programs.

Similarly, the National Defense Authorization Act for Fiscal Year 2024 requires the U.S.

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● Geopolitical tensions/conflicts .

Geopolitical tensions and conflicts in various locations around the world continue to increase, including on the issue of Taiwan in Asia, Ukraine and Russia, and between Israel and Hamas and Iran.

Geopolitical tensions and conflicts in various locations around the world continue to increase, including on the issue of Taiwan in Asia, Ukraine and Russia, and growing armed conflicts in the Middle East.

These current situations have created volatility in the global financial markets and may have further global economic consequences, including potential disruptions of the global supply chain and heightened volatility of commodity and raw material prices.

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We have contractors located in the West Bank and in Israel, who are providing software development and customer technical support services, and we have developed contingency plans to use alternative resources to continue serving customers, if needed.

Any escalations could lead to disruptions or reductions in international trade, deter or prevent purchasing activity of customers, and negatively impact our development timelines and customer support (with respect to the Israel-Hamas conflict) or China sales (with respect to U.S.-P.R.C.

Any escalations could lead to disruptions or reductions in international trade, deter or prevent purchasing activity of customers, and negatively impact our development timelines and customer support (with respect to the conflicts in the Middle East) or China sales (with respect to U.S.-P.R.C.

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

Financial Highlights

Financial highlights for the three months ended June 30, 2024, are as follows:

● Total revenues were $41.7 million, an increase of $0.1 million, which was relatively flat compared to the three months ended June 30, 2023.

Analytics revenue was $38.1 million, an increase of $1.0 million, or 3%, compared to the three months ended June 30, 2023.

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

Integrated Yield Ramp revenue was $3.5 million, a decrease of $0.9 million, or 21%, compared to the three months ended June 30, 2023.

The decrease in Integrated Yield Ramp revenue was primarily due to lower Gainshare from decreased customer wafer shipments at non-leading-edge nodes, partially offset by an increase in hours worked on fixed-fees engagements.

● Costs of revenues decreased $0.1 million, compared to the three months ended June 30, 2023, primarily due to decreases in hardware costs and facilities and IT-related costs including depreciation.

These decreases were partially offset by increases in personnel-related costs and third-party cloud-delivery costs.

● Net income was $1.7 million, compared to a net income of $6.8 million for the three months ended June 30, 2023.

The decrease in net income was primarily attributable to increases in (i) income tax expense, (ii) sales and marketing activities, and general and administrative expenses, which were primarily related to increases in general legal expenses, and personnel-related costs, partially offset by decreases in third-party cloud-services costs, business acquisition costs and fees related to the arbitration proceeding over a disputed customer contract, and (iii) research and development expenses, partially offset by an increase in interest income.

Financial highlights for the six months ended June 30, 2024, are as follows:

● Total revenues were $83.0 million, an increase of $0.6 million, or 1%, compared to the six months ended June 30, 2023.

Analytics revenue was $76.6 million, an increase of $3.1 million, or 4%, compared to the six months ended June 30, 2023.

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

Integrated Yield Ramp revenue was $6.4 million, a decrease of $2.5 million, or 28%, compared to the six months ended June 30, 2023.

The decrease in Integrated Yield Ramp revenue was primarily due to lower Gainshare from decreased customer wafer shipments at non-leading-edge nodes and hours worked on fixed-fees engagements.

● Costs of revenues increased $1.5 million, compared to the six months ended June 30, 2023, primarily due to increases in hardware costs, third-party cloud-delivery costs, and subcontractor costs.

These increases were partially offset by a decrease in facilities and IT-related costs, including depreciation expense.

● Net income was $1.3 million, compared to net income of $7.2 million for the six months ended June 30, 2023.

The decrease in net income was primarily attributable to increases in (i) income tax expense, (ii) sales and marketing activities and general and administrative expenses, which were primarily related to increases in personnel-related costs and general legal expenses, partially offset by decreases in legal fees related to the arbitration proceeding over a disputed customer contract and business acquisition costs, (iii) costs of revenues, and (iv) research and development expenses, partially offset by increases in (a) total revenues, (b) interest income, and (c) net favorable fluctuations in foreign currency exchange rates.

● Cash, cash equivalents, and short-term investments as of June 30, 2024, were $117.9 million, compared to $135.5 million as of December 31, 2023, a decrease of $17.6 million, primarily due to payments of accrued bonuses, payments to vendors and for income taxes, purchases of property and equipment, repurchases of common stock, and payments of taxes related to net share settlement of equity awards, partially offset by cash collection from customers, proceeds from purchases under our employee stock purchase plan and exercise of stock options, and interest income from cash, cash equivalents and short-term investments.

Financial highlights for the three months ended September 30, 2024, are as follows:

● Total revenues were $46.4 million, an increase of $4.1 million, or 10%, compared to the three months ended September 30, 2023.

Analytics revenue was $44.8 million, an increase of $5.3 million, or 13%, compared to the three months ended September 30, 2023.

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

Integrated Yield Ramp revenue was $1.7 million, a decrease of $1.2 million, or 42%, compared to the three months ended September 30, 2023.

The decrease in Integrated Yield Ramp revenue was primarily due to a decrease in hours worked on fixed-fees engagements, partially offset by higher Gainshare from increased customer wafer shipments at non-leading-edge nodes.

● Costs of revenues decreased $1.8 million, compared to the three months ended September 30, 2023, primarily due to decreases in hardware costs and facilities and IT-related costs including depreciation and amortization expense.

These decreases were partially offset by increases in subcontractor costs, third-party cloud-delivery costs, and personnel-related costs.

● Net income was $2.2 million, compared to a net loss of $5.0 million for the three months ended September 30, 2023.

The increase in net income was primarily attributable to (i) an increase in total revenues, (ii) a decrease in costs of revenues, and (iii) a decrease in income tax expense, partially offset by (a) increases in sales and marketing activities, and general and administrative expenses, which were primarily related to increases in personnel-related costs, legal expenses (excluding arbitration-related expenses), facilities and IT-related costs including depreciation expense, subcontractor fees, and trade conference-related expenses, partially offset by a decrease in fees related to the arbitration proceeding over a disputed customer contract, (b) an increase in research and development expenses, and (c) net unfavorable fluctuations in foreign currency exchange rates.

Financial highlights for the nine months ended September 30, 2024, are as follows:

● Total revenues were $129.4 million, an increase of $4.7 million, or 4%, compared to the nine months ended September 30, 2023.

Analytics revenue was $121.3 million, an increase of $8.4 million, or 7%, compared to the nine months ended September 30, 2023.

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

Integrated Yield Ramp revenue was $8.1 million, a decrease of $3.7 million, or 31%, compared to the nine months ended September 30, 2023.

The decrease in Integrated Yield Ramp revenue was primarily due to lower hours worked on fixed-fees engagements and Gainshare from decreased customer wafer shipments at non-leading-edge nodes.

● Costs of revenues decreased $0.3 million, compared to the nine months ended September 30, 2023, primarily due to decreases in facilities and IT-related costs including depreciation and amortization expense, and hardware costs.

These decreases were partially offset by increases in third-party cloud-delivery costs, subcontractor costs, and personnel-related costs.

● Net income was $3.5 million, compared to a net income of $2.2 million for the nine months ended September 30, 2023.

The increase in net income was primarily attributable to (i) increases in total revenues and interest income, and (ii) decreases in income tax expense, costs of revenues, and amortization of acquired intangible assets, partially offset by increases in (a) sales and marketing activities, and general and administrative expenses, which were primarily related to increases in personnel-related costs, legal expenses (excluding arbitration-related expenses), facilities and IT-related costs including depreciation expense, trade conference-related expenses, tax and accounting services, and subcontractor fees, partially offset by decreases in fees related to the arbitration proceeding over a disputed customer contract, business acquisition costs, third-party cloud-services related costs, and (b) research and development expenses.

Critical Accounting Estimates

See Note 1, Basis of Presentation and Summary of Significant Accounting Policies , to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q and the Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023, for the description of our significant accounting policies, estimates and methods used in the preparation of our condensed consolidated financial statements.

There were no material changes during the three and six months ended June 30, 2024, to the items that we disclosed as our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024.

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

There were no material changes during the three and nine months ended September 30, 2024, to the items that we disclosed as our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024.

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

Our discussion and analysis of our financial conditions, results of operations and cash flows are based on our condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America.

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

The most significant estimates and assumptions relate to revenue recognition, valuation of long-lived assets including goodwill and intangible assets, stock-based compensation and the realization of deferred tax assets (“DTAs”).

The most significant estimates

and assumptions relate to revenue recognition, valuation of long-lived assets including goodwill and intangible assets, stock-based compensation and the realization of deferred tax assets (“DTAs”).

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

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Operating lease revenue is recognized on a straight-line basis over the lease term.

Sales-type lease revenue and corresponding lease receivables are recognized at lease commencement based on the present value of the future lease payments, and related interest income on lease receivable is recognized over the lease term and are recorded under Analytics revenue in the accompanying condensed consolidated statements of comprehensive income.

Payments under sales-type leases are discounted using the interest rate implicit in the

lease revenue and corresponding lease receivables are recognized at lease commencement based on the present value of the future lease payments, and related interest income on lease receivable is recognized over the lease term and are recorded under Analytics revenue in the accompanying condensed consolidated statements of comprehensive income (loss).

Payments under sales-type leases are discounted using the interest rate implicit in the lease.

When the Company’s leases are embedded in contracts with customers that include non-lease performance obligations, the Company allocates consideration in the contract between lease and non-lease components based on their relative SSPs.

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

federal and state net DTAs, primarily driven by a cumulative loss incurred over the 12-quarter period ended June 30, 2024, and the likelihood that we may not utilize tax attributes before they expire.

The valuation allowance was approximately $64.2 million as of June 30, 2024, and December 31, 2023.

federal and state net DTAs, primarily driven by a cumulative loss incurred over the 12-quarter period ended September 30, 2024, and the likelihood that we may not utilize tax attributes before they expire.

The valuation allowance was approximately $64.2 million as of September 30, 2024, and December 31, 2023.

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

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

As of June 30, 2024, no deferred taxes have been provided on undistributed earnings from our international subsidiaries.

We intend to reinvest the earnings of

As of September 30, 2024, no deferred taxes have been provided on undistributed earnings from our international subsidiaries.

We intend to reinvest the

earnings of our non-U.S.

subsidiaries in those operations indefinitely.

As such, we have not provided for any foreign withholding taxes on the earnings of foreign subsidiaries as of June 30, 2024.

As such, we have not provided for any foreign withholding taxes on the earnings of foreign subsidiaries as of September 30, 2024.

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

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law on August 9, 2022.

The CHIPS Act is intended to increase domestic competitiveness in semiconductor manufacturing capacity, increase research and development in computing, artificial intelligence, clean energy, and nanotechnology through federal government programs and incentives over the next ten years.

The CHIPS Act is intended to increase domestic competitiveness in semiconductor manufacturing capacity, increase research and development in computing, AI, clean energy, and nanotechnology through federal government programs and incentives over the next ten years.

The CHIPS Act includes an advanced manufacturing tax credit equal to 25% of qualified investments in property purchased for an advanced manufacturing facility.

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

There was no impairment of goodwill for the three and six months ended June 30, 2024 and 2023.

There was no impairment of goodwill for the three and nine months ended September 30, 2024 and 2023.

Our long-lived assets, excluding goodwill, consist of property, equipment, intangible assets and unguaranteed residual assets under net investments in sales-type leases.

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recorded in the amount by which the carrying amount of the asset group exceeds its fair value.

There was no impairment of long-lived assets for the three and six months ended June 30, 2024 and 2023.

There was no impairment of long-lived assets for the three and nine months ended September 30, 2024 and 2023.

Recent Accounting Pronouncements and Accounting Changes

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Results of Operations

Discussion of Financial Data for the Three and Six Months ended June 30, 2024 and 2023

Discussion of Financial Data for the Three and Nine months ended September 30, 2024 and 2023

Revenues, Costs of Revenues, and Gross Margin

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

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Analytics Revenue

Analytics revenue increased $1.0 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

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

Analytics revenue increased $3.1 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

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

Analytics revenue increased $5.3 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

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

Analytics revenue increased $8.4 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

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

Integrated Yield Ramp Revenue

Integrated Yield Ramp revenue decreased $0.9 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to a decrease in Gainshare from decreased customer wafer shipments at non-leading-edge nodes, partially offset by an increase in hours worked on fixed-fees engagements.

Integrated Yield Ramp revenue decreased $2.5 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to decreases in Gainshare from decreased customer wafer shipments at non-leading-edge nodes and hours worked on fixed-fees engagements.

Integrated Yield Ramp revenue decreased $1.2 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to a decrease in hours worked on fixed-fees engagements, partially offset by higher Gainshare from increased customer wafer shipments at non-leading-edge nodes.

Integrated Yield Ramp revenue decreased $3.7 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to lower hours worked on fixed-fees engagements and Gainshare from decreased customer wafer shipments at non-leading-edge nodes.

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

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

The decrease in costs of revenues of $0.1 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was primarily due to (i) a $0.3 million decrease in hardware costs and (ii) a $0.2 million decrease in facilities and IT-related costs including depreciation expense.

These decreases were partially offset by (a) a $0.2 million increase in personnel-related costs due to higher stock-based compensation expenses, increased headcount, and worldwide salary increases, partially offset by lower bonus expense, and (b) a $0.1 million increase in third-party cloud-delivery costs.

The increase in costs of revenues of $1.5 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to (i) a $1.4 million increase in hardware costs, (ii) a $0.2 million increase in third-party cloud-delivery costs and (iii) a $0.2 million increase in subcontractor costs.

These increases were partially offset by a $0.3 million decrease in facilities and IT-related costs including depreciation expense.

Gross margin increased one percentage point for the three months ended June 30, 2024, to 71%, compared to 70% for the three months ended June 30, 2023.

The higher gross margin during the three months ended June 30, 2024, was primarily due to lower cost of revenues.

Gross margin decreased two percentage points for the six months ended June 30, 2024, to 69%, compared to 71% for the six months ended June 30, 2023.

The lower gross margin during the six months ended June 30, 2024, was primarily due to lower Integrated Yield Ramp revenue and higher cost of revenues for the six months ended June 30, 2024.

The decrease in costs of revenues of $1.8 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, was primarily due to (i) a $2.0 million decrease in hardware costs and (ii) a $0.5 million decrease in facilities and IT-related costs including depreciation and amortization expense.

These decreases were partially offset by (a) a $0.3 million increase in subcontractor costs, (b) a $0.3 million increase in third-party cloud-delivery costs, and (c) a $0.2 million increase in personnel-related costs mostly resulting from higher stock-based compensation expenses.

The decrease in costs of revenues of $0.3 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily due to (i) a $0.8 million decrease in facilities and IT-related costs including depreciation and amortization expense, and (ii) a $0.6 million decrease in hardware costs.

These decreases were partially offset by (a) a $0.5 million increase in third-party cloud-delivery costs, (b) a $0.4 million increase in subcontractor costs, and (c) a $0.2 million increase in personnel-related costs mostly resulting from higher stock-based compensation expenses, higher other compensation expenses (including employee benefit costs), increased headcount, and worldwide salary increases, partially offset by lower bonus expense.

Gross margin increased seven percentage points for the three months ended September 30, 2024, to 73%, compared to 66% for the three months ended September 30, 2023.

The higher gross margin during the three months ended September 30, 2024, was primarily due to higher Analytics revenue and lower cost of revenues for the three months ended September 30, 2024.

Gross margin increased one percentage point for the nine months ended September 30, 2024, to 70%, compared to 69% for the nine months ended September 30, 2023.

The higher gross margin during the nine months

ended September 30, 2024, was primarily due to higher Analytics revenue for the nine months ended September 30, 2024.

Operating Expenses:

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

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As a percentage of total revenues

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

Research and development expenses increased $0.4 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to (i) a $0.3 million increase in personnel-related costs mostly resulting from higher stock-based compensation expenses, higher other compensation expenses (including employee benefit costs), increased headcount, and worldwide salary increases, partially offset by lower bonus expense, and (ii) a $0.1 million increase in travel expenses.

Research and development expenses increased $0.3 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to (i) a $0.6 million increase in personnel-related costs mostly resulting from higher stock-based compensation expenses, higher other compensation expenses (including employee benefit costs), increased headcount, and worldwide salary increases, partially offset by lower bonus expense, and (ii) a $0.2 million increase in third-party cloud-services costs, partially offset by (a) a $0.3 million decrease in subcontractor fees primarily related to DFI systems and (b) a $0.2 million decrease in facilities and IT-related costs including depreciation expense.

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

Research and development expenses increased $0.4 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to (i) a $0.3 million increase in subcontractor fees primarily related to Cimetrix and Exensio software and (ii) a $0.2 million increase in personnel-related costs mostly resulting from higher stock-based compensation expenses, higher other compensation expenses (including employee benefit costs and bonuses), increased headcount, and worldwide salary increases.

Research and development expenses increased $0.7 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to (i) a $0.7 million increase in personnel-related costs mostly resulting from higher stock-based compensation expenses, higher other compensation expenses (including employee benefit costs), increased headcount, and worldwide salary increases, partially offset by lower bonus expense, (ii) a $0.2 million increase in third-party cloud-services costs, and (iii) a $0.1 million increase in travel expenses, partially offset by a $0.2 million decrease in laboratory supplies, facilities and IT-related costs including depreciation expense.

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

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

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

Selling, general, and administrative expenses increased $1.5 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to (i) a $0.9 million increase in legal expenses (excluding arbitration-related expenses) and (ii) a $0.9 million increase in personnel-related costs mainly resulting from higher stock-based compensation expenses, higher other compensation expenses (including commissions and

employee benefit costs), increased headcount, and worldwide salary increases, partially offset by lower bonus expense.

These increases were partially offset by (a) a $0.2 million decrease in third-party cloud-services costs, (b) a $0.2 million decrease in business acquisition costs, and (c) a $0.2 million decrease in legal fees related to the arbitration proceeding over a disputed customer contract.

Selling, general, and administrative expenses increased $2.3 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to (i) a $3.2 million increase in personnel-related costs mainly resulting from higher stock-based compensation expenses, higher other compensation expenses (including commissions and employee benefit costs), increased headcount, and worldwide salary increases, partially offset by lower bonus expense, and (ii) a $1.6 million increase in legal expenses (excluding arbitration-related expenses).

These increases were partially offset by (a) a $2.3 million decrease in legal fees related to the arbitration proceeding over a disputed customer contract and (b) a $0.2 million decrease in business acquisition costs.

Selling, general, and administrative expenses increased $2.5 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to (i) a $1.6 million increase in personnel-related costs mainly resulting from higher stock-based compensation expenses, higher other compensation expenses (including commissions, employee benefit costs and bonuses), increased headcount, and worldwide salary increases, (ii) a $0.6 million increase in legal expenses (excluding arbitration-related expenses), (iii) a $0.3 million increase in facilities and IT-related costs including depreciation expense, (iv) a $0.1 million increase in subcontractor fees, and (v) a $0.1 million increase in trade conference-related expenses.

These increases were partially offset by a $0.2 million decrease in legal fees related to the arbitration proceeding over a disputed customer contract.

Selling, general, and administrative expenses increased $4.8 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to (i) a $4.8 million increase in personnel-related costs mainly resulting from higher stock-based compensation expenses, higher other compensation expenses (including commissions and employee benefit costs), increased headcount, and worldwide salary increases, partially offset by lower bonus expense, (ii) a $2.1 million increase in legal expenses (excluding arbitration-related expenses), (iii) a $0.3 million increase in facilities and IT-related costs including depreciation expense, (iv) a $0.2 million increase in trade conference-related expenses, and (v) a $0.1 million increase in subcontractor fees.

These increases were partially offset by (a) a $2.5 million decrease in legal fees related to the arbitration proceeding over a disputed customer contract, (b) a $0.2 million decrease in business acquisition costs, and (c) a $0.1 million decrease in third-party cloud-services costs.

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

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

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Six Months Ended

Nine Months Ended

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(Dollars in thousands)

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

Interest and other expense (income), net increased $0.4 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to higher interest income resulting from higher interest rates and sales-type leases, and net favorable fluctuations in foreign currency exchange rates.

Interest and other expense (income), net increased $1.2 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to higher interest income resulting from higher interest rates and sales-type leases, and net favorable fluctuations in foreign currency exchange rates.

Interest and other expense (income), net decreased $0.5 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to net unfavorable fluctuations in foreign currency exchange rates.

Interest and other expense (income), net increased $0.7 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to higher interest income resulting from higher interest rates and sales-type leases.

Income Tax Expense

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

Income tax benefit (expense)

Income tax expense increased for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, primarily due to changes in the foreign and state taxes and year-to-date recognition of worldwide pre-tax income (loss) in relation to their forecasted amounts for full years.

Income tax expense decreased for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, primarily due to changes in the foreign and state taxes and year-to-date recognition of worldwide pre-tax income in relation to their forecasted amounts for full years.

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

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Liquidity and Capital Resources

As of June 30, 2024, our working capital, defined as total current assets less total current liabilities, was $137.8 million, compared to $147.0 million as of December 31, 2023.

Total cash, cash equivalents, and short-term investments were $117.9 million as of June 30, 2024, compared to cash, cash equivalents, and short-term investments of $135.5 million as of December 31, 2023.

As of June 30, 2024, and December 31, 2023, cash and cash equivalents held by our foreign subsidiaries were $9.8 million and $10.0 million, respectively.

As of September 30, 2024, our working capital, defined as total current assets less total current liabilities, was $133.7 million, compared to $147.0 million as of December 31, 2023.

Total cash, cash equivalents, and short-term investments were $120.2 million as of September 30, 2024, compared to cash, cash equivalents, and short-term investments of $135.5 million as of December 31, 2023.

As of September 30, 2024, and December 31, 2023, cash and cash equivalents held by our foreign subsidiaries were $12.2 million and $10.0 million, respectively.

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

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On April 11, 2022, the Board of Directors adopted a stock repurchase program (the “2022 Program”) to repurchase up to $35.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, from time to time, over the next two years.

During the six months ended June 30, 2024, 201,561 shares were repurchased by the Company under the 2022 Program at an average price of $34.23 per share for an aggregate total price of $6.9 million.

During the nine months ended September 30, 2024, 201,561 shares were repurchased by the Company under the 2022 Program at an average price of $34.23 per share for an aggregate total price of $6.9 million.

In total, the Company repurchased 937,501 shares under the 2022 Program at an average price of $25.96 per share for an aggregate total price of $24.3 million.

The 2022 Program expired on April 11, 2024, and on April 15, 2024, the Board of Directors adopted a new program to repurchase up to $40.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, from time to time, over the next two years.

The Company has not repurchased any shares under the 2024 Program.

Cash Flow Data

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

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

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Net change in cash and cash equivalents

Net Cash Flows Used in Operating Activities

Cash flows used in operating activities during the six months ended June 30, 2024, consisted of net income, adjusted for certain non-cash items which primarily consisted of depreciation and amortization, stock-based compensation expense, amortization of acquired intangible expense, amortization of costs capitalized to obtain revenue contracts, net accretion of discounts on short-term investments, and net change in operating assets and liabilities.

Net cash flows used in operating activities was $1.2 million for the six months ended June 30, 2024, compared to net cash flows used in operating activities of $6.6 million for the six months ended June 30, 2023.

The decrease in cash used in operating activities between the periods was driven primarily by (i) a decrease in bonus payments under the Company’s bonus plan, (ii) a decrease in payments of vendor invoices, and (iii) an increase in interest income, partially offset by lower collections from customers and net income between comparable periods.

Net income was $1.3 million for the six months ended June 30, 2024, compared to a net income of $7.2 million for the six months ended June 30, 2023.

The major contributors to the net change in operating assets and liabilities for the six months ended June 30, 2024, were as follows:

Net Cash Flows Provided by Operating Activities

Cash flows provided by operating activities during the nine months ended September 30, 2024, consisted of net income, adjusted for certain non-cash items which primarily consisted of depreciation and amortization, stock-based compensation expense, amortization of acquired intangible expense, amortization of costs capitalized to obtain revenue contracts, net accretion of discounts on short-term investments, accretion of unguaranteed residual assets and net change in operating assets and liabilities.

Net cash flows provided by operating activities was $8.1 million for the nine months ended September 30, 2024, compared to $12.6 million for the nine months ended September 30, 2023.

The decrease in cash provided by operating activities between the periods was driven primarily by lower collections from customers, partially offset by (i) a decrease in bonus payments under the Company’s bonus plan, (ii) a decrease in payments of vendor invoices, (iii) an increase in interest income, and (iv) an increase in net income between comparable periods.

Net income was $3.5 million for the nine months ended September 30, 2024, compared to $2.2 million for the nine months ended September 30, 2023.

The major contributors to the net change in operating assets and liabilities for the nine months ended September 30, 2024, were as follows:

● Accounts receivable increased by $1.7 million, primarily due to contractual invoicing activity and an increase in unbilled accounts receivables due to the timing of billing and revenue recognition, partially offset by collections from customers;

● Prepaid expense and other current assets increased by $3.0 million, primarily due to increases in lease receivables and deferred commission, partially offset by a decrease in contract assets;

● Other non-current assets increased by $7.1 million primarily due to increases in non-current assets from sales-type leases, costs capitalized to obtain revenue contracts, non-current unbilled accounts receivables due to the timing of billing and revenue recognition, and non-current prepaid expenses, partially offset by a decrease in non-current contract assets;

● Prepaid expense and other current assets increased by $8.8 million, primarily due to increases in lease receivables, contract assets, prepaid expenses and deferred commission, partially offset by a decrease in income tax receivable;

● Other non-current assets increased by $11.5 million primarily due to increases in non-current unbilled accounts receivables due to the timing of billing and revenue recognition, non-current assets from sales-type leases, non-current prepaid expenses and costs capitalized to obtain revenue contracts, partially offset by a decrease in non-current contract assets;

● Accounts payable increased by $3.0 million primarily due to the timing of payments of vendor invoices;

● Accrued compensation and related benefits decreased by $3.2 million primarily due to the payments of accrued bonuses net of new bonus accruals, partially offset by increases in accrued commissions and contributions to the employee stock purchase plan;

● Accrued compensation and related benefits decreased by $1.6 million primarily due to the payments of accrued bonuses net of new bonus accruals and exercise of purchase rights under the employee

stock purchase plan, partially offset by increases in accrued commissions and other compensation, and new contributions to the employee stock purchase plan;

● Deferred revenue increased by $2.8 million primarily due to the timing of billing and revenue recognition;

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Net Cash Flows Provided by (Used in) Investing Activities

Net cash provided by investing activities was $4.2 million for the six months ended June 30, 2024, compared to net cash used in investing activities of $9.7 million for the six months ended June 30, 2023.

For the six months ended June 30, 2024, cash provided by investing activities primarily related to proceeds from maturities and sales of short-term investments of $37.0 million, partially offset by purchases of short-term investments of $25.5 million and purchases of property and equipment of $7.3 million primarily related to our DFI systems.

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

Net cash provided by investing activities was $0.2 million for the nine months ended September 30, 2024, compared to net cash used in investing activities of $14.2 million for the nine months ended September 30, 2023.

For the nine months ended September 30, 2024, cash provided by investing activities primarily related to proceeds from maturities and sales of short-term investments of $57.1 million, partially offset by purchases of short-term investments of $43.1 million, purchases of and prepayments for property and equipment of $11.9 million primarily related to our DFI systems, and purchase of a convertible promissory note of $2.0 million.

For the nine months ended September 30, 2023, cash used in investing activities primarily related to purchases of short-term investments of $32.3 million, purchases of and prepayments for property and equipment of $8.9 million primarily related to our DFI and CV systems, payment for business acquisition, net of cash acquired, of $1.8 million, partially offset by proceeds from maturities and sales of short-term investments of $28.8 million.

Net Cash Flows Used in Financing Activities

Net cash used in financing activities was $9.2 million for the six months ended June 30, 2024, compared to $2.5 million for the six months ended June 30, 2023.

For the six months ended June 30, 2024, net cash used in financing activities primarily consisted of repurchases of common stock of $6.9 million, and $4.3 million in cash payments for taxes related to net share settlement of equity awards, partially offset by $2.0 million of proceeds from our employee stock purchase plan and exercise of stock options.

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

Net cash used in financing activities was $10.9 million for the nine months ended September 30, 2024, compared to $5.6 million for the nine months ended September 30, 2023.

For the nine months ended September 30, 2024, net cash used in financing activities primarily consisted of $8.2 million in cash payments for taxes related to net share settlement of equity awards, repurchases of common stock of $6.9 million, partially offset by $4.2 million of proceeds from our employee stock purchase plans and exercise of stock options.

For the nine months ended September 30, 2023, net cash used in financing activities primarily consisted of $9.1 million in cash payments for taxes related to net share settlement of equity awards, repurchases of common stock of $0.7 million, partially offset by $4.3 million of proceeds from our employee stock purchase plans and exercise of stock options.

Related Party Transactions

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What changed 10-Q

Item 2. Management’s Discussion and Analysis