PDF SOLUTIONS INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact may be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “projected,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target” or “continue,” the negative effect of terms like these or other similar expressions. These statements include, but are not limited to, statements related to: the Company’s business strategy and objectives; the Company’s intellectual property and proprietary software, information and technology; the Company’s sales and marketing strategy, expectations regarding strategic alliances and relationships; investments in research and development; industry trends; macroeconomic factors, inventories, and demand; changing export controls and sanctions; U.S. administrative initiatives; investments in semiconductor manufacturing; geopolitical tensions and conflicts; fluctuations in the Company’s quarterly results; and other statements identified by words such as “could,” “expects,” “intends,” “may,” “plans,” “potential,” “should,” “will,” “would,” or similar expressions and the negatives of those terms, that are subject to future events and circumstances, and uncertainties that could cause results to differ materially include risks associated with: the effectiveness of the Company’s business and technology strategies; current semiconductor industry trends and competition; rates of adoption of the Company’s solutions by new and existing customers; project milestones or delays and performance criteria achieved; cost and schedule of new product development and investments in research and development; the continuing impact of macroeconomic conditions, including inflation, changing interest rates and tariffs, the evolving trade regulatory environment and geopolitical tensions, and other trends impacting the semiconductor industry, the Company’s customers, operations, and supply and demand for its products; supply chain disruptions; the success of the Company’s strategic growth opportunities and partnerships; recent and future acquisitions, strategic alliances and relationships and the Company’s ability to successfully integrate acquired businesses and technologies; whether the Company can successfully convert backlog into revenue; customers’ production volumes under contracts that provide Gainshare; the sufficiency of the Company’s cash resources and anticipated funds from operations; the Company’s ability to obtain additional financing if needed; the Company’s ability to use support and updates for certain open-source software; and other risks and uncertainties discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”) . These forward-looking statements are only predictions. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those anticipated or projected. All forward-looking statements and other information included in this document are based on information available to us on the date of filing and we further caution investors that our business and financial performance are subject to substantial risks and uncertainties. We assume no obligation to update publicly any such forward-looking statements. In evaluating these statements, you should specifically consider various factors, including the risk factors set forth in Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 27, 2025 (the “Annual Report”). All references to “we,” “us,” “our,” “PDF,” “PDF Solutions” or “the Company” refer to PDF Solutions, Inc. Cimetrix, CV, DFI, Exensio, PDF Solutions, secureWISE, and the Cimetrix, Exensio, PDF Solutions, and secureWISE logos, are trademarks or registered trademarks of PDF Solutions, Inc. or its subsidiaries. Overview We offer products and services designed to empower organizations across the semiconductor and electronics ecosystems to connect, collect, manage, transfer, and analyze data about design, equipment, manufacturing, and test to improve the yield and quality of their products. We derive revenues from two sources: Analytics and Integrated Yield Ramp. Our offerings combine proprietary software, professional services using proven methodologies, third-party cloud-hosting platforms for software-as-a-service (“SaaS”), electrical measurement hardware tools, and physical intellectual property (“IP”) for integrated circuit (“IC”) designs. We primarily monetize our offerings through license fees and contract fees for professional services and SaaS. In some cases, especially on our historical Integrated Yield Ramp engagements, we also receive a value-based variable fee or royalty, which we call Gainshare. Our products, services, and solutions have been sold to integrated device manufacturers (“IDMs”), fabless semiconductor companies, foundries, out-sourced semiconductor assembly and test (“OSATs”), capital equipment manufacturers, and system houses. 29 Table of Contents We are headquartered in Santa Clara, California and also operate worldwide with offices in Canada, China, France, Germany, Italy, Japan, Korea, and Taiwan. Acquisition of SecureWise LLC On March 7, 2025, we completed the acquisition of SecureWise LLC (“SecureWise”), a Delaware limited liability company (see Note 14, Business Combinations , in the notes to condensed consolidated financial statements (unaudited) in Part I, Item 1 of this Quarterly Report on Form 10-Q), and added the widely-used, secure, remote secureWISE connectivity solution to our products and services portfolio. We expect this acquisition to also accelerate equipment makers’ ability to derive value from equipment data by enabling them to leverage our Exensio analytics software and to expand the capability of our secure data exchange (“DEX”) outsourced semiconductor assembly and test (“OSAT”) network by allowing equipment makers, fab operators, and fabless companies to collaborate to optimize chip manufacturing and test. Industry Trends Certain trends may affect our Analytics revenue specifically. In particular, the confluence of Industry 4.0 (i.e. the fourth industrial revolution, or the automation and data exchange in manufacturing technologies and processes) and cloud computing (i.e. the on-demand availability of computing resources and data storage without direct active management by the user) is driving increased innovation in semiconductor and electronics manufacturing and analytics, as well as in the organization of information technology (“IT”) networks and computing at semiconductor and electronics companies across the ecosystem. First, the ubiquity of wireless connectivity and sensor technology enables any manufacturing company to augment its factories and visualize its entire production line. In parallel, the cost per terabyte of data storage has generally decreased over time. The combination of these two trends means that more data is collected and stored than ever before. Further, semiconductor companies are striving to analyze these very large data sets in real-time to make rapid decisions that measurably improve manufacturing efficiency and quality. In parallel, the traditional practice of on-site data storage, even for highly sensitive data, is changing. The ability to cost-effectively and securely store, analyze, and retrieve massive quantities of data from the cloud versus on-premise enables data to be utilized across a much broader population of users, frequently resulting in greater demands on analytics programs. The combination of these latter two trends means that cloud-based, analytics programs that effectively manage identity management, physical security, and data protection are increasingly in demand for insights and efficiencies across the organizations of these companies. We believe that all these trends will continue for the next few years, and the challenges involved in adopting Industry 4.0 and secure cloud computing will create opportunities for our combination of advanced analytics capabilities, proven and established supporting infrastructure, and professional services to configure our products to meet customers’ specialized needs. Other trends may continue to affect our Characterization services business and Integrated Yield Ramp revenue specifically. For example, semiconductor manufacturers may experience lower wafer shipments due to weakness in the global economy, which would negatively impact the gainshare component of our Integrated Yield Ramp revenue. The logic foundry market at the leading-edge nodes, such as 7nm, 5nm, and smaller, underwent significant change over the past few years. The leading foundry continues to dominate market share. This trend will likely continue to impact our Characterization services business on these nodes. We expect most logic foundries to invest in derivatives of older process nodes, such as 14nm, to extract additional value as many of their customers will not move to advanced nodes due to either technological barriers or restrictive economics. Foundries that participate at leading edge nodes are expected to continue to invest in new technologies such as memory, 2.5D and 3D packaging, extreme ultraviolet lithography, and 3D architectures such as backside power and gate-all-around transistors , as well as new innovations in process control and variability management. We expect China’s investment in semiconductors to continue. Compliance with changing U.S. 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 (including differentiated data), services, and solutions for analytics. There are other global or business trends that may affect our business opportunities generally as follows: ● Macroeconomy, inventories, and demand . The worldwide economic performance is uneven, and the possibility of a recession persists, leading to uneven demand. Inventories of semiconductor devices remain elevated in some instances. With high inventories and soft demand for some product segments, some semiconductor fab utilization rates are also low and semiconductor capital equipment orders have been impacted for some vendors and market 30 Table of Contents segments. As a result, some purchase cycles, especially for enterprise software and capital equipment and particularly with respect to larger deals, have lengthened in recent years and may continue to do so. ● Changing export controls and sanctions . The U.S. government continues to expand and intensify export controls and sanctions, with a major focus on the destinations of and/or entities in the People’s Republic of China (“P.R.C.”), Russian Federation, and Belarus. Some customers in the P.R.C., in particular, have expressed concerns to us that continued action by the U.S. government could potentially interrupt their ability to make use of our products or services, which has in some cases, and could in the future, negatively impact the demand for our products and services by these customers. Recent additions to regulations include expansion of special Foreign Direct Product Rules, which extend the reach of the EAR to certain foreign-made products produced with certain U.S. items in certain cases of designated end-users or end-uses, and to renewal licenses for certain lawfully delivered products that would have changed status under new regulations. Such regulatory additions could negatively affect sales. Additional proposed and complicated regulations, including for added restrictions on U.S. person activity, remain pending. U.S. government policy and regulation remain fluid and uncertain, and could in the future impact segments of our business. Other countries and jurisdictions with important roles in our industry are updating some of their export control regulations to further align with those of the U.S. government and, in some cases, to counter U.S. regulations. For example, the P.R.C. 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. On November 27, 2024, the U.S. government renewed its caution that visitors to the P.R.C. are subject to arbitrary enforcement of local laws and wrongful detention, a risk that could deter or hinder certain business activities. Based on our current assessments, we expect the near-term impact of these expanded trade restrictions on our business to be limited, but revisions, clarifications, and proposals that are still in government development and open questions of interpretation leave much unknown. ● U.S. Administrative Initiatives. The new U.S. Administration has made and is expected to continue to make changes to U.S. trade policy, including renegotiating or terminating existing trade agreements and leveraging tariffs. For example, the U.S. recently imposed additional tariffs on imports from China, Canada, and Mexico. We do not import into the U.S. a significant volume of goods of those countries. Trade conflict through exchange of tariffs and other retaliatory actions are expected to impact worldwide supply chains, increase prices and put downward pressure on economic activity, and could negatively affect our future sales in various geographic markets. The uncertainty caused by these recent regulations and the potential for additional future restrictions could negatively affect our future sales, including in but not limited to the P.R.C. market. ● Geopolitical tensions/conflicts . Geopolitical tensions and conflicts in various locations around the world have created volatility in the global financial markets and may have further global economic consequences, including potential disruptions of the global supply chain, heightened volatility of commodity and raw material prices, and increased fears of a global recession. 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 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 March 31, 2025, are as follows: ● Total revenues were $47.8 million, an increase of $6.5 million, or 16%, compared to the three months ended March 31, 2024. Analytics revenue was $42.5 million, an increase of $4.0 million, or 10%, compared to the three months ended March 31, 2024. The increase in Analytics revenue was driven by increases in revenues from Exensio and Cimetrix software licenses and CV and secureWISE systems, partially offset by a decrease in revenues from DFI systems. Integrated Yield Ramp revenue was $5.3 million, an increase of $2.5 million, or 86%, compared to the three months ended March 31, 2024. The increase in Integrated Yield Ramp revenue was primarily due to higher Gainshare from increased customer wafer shipments at non-leading-edge nodes, partially offset by a decrease in hours worked on fixed-fees engagements. 31 Table of Contents ● Costs of revenues decreased $0.6 million, compared to the three months ended March 31, 2024, 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 loss was $3.0 million, compared to a net loss of $0.4 million for the three months ended March 31, 2024. The increase in net loss was primarily attributable to (i) an increase in sales and marketing activities, and general and administrative expenses, which was primarily due to acquisition costs related to the acquisition of SecureWise, and (ii) an increase in research and development expenses, partially offset by an increase in total revenues. Critical Accounting Policies 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. Our preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. 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”). Actual amounts may differ from such estimates under different assumptions or conditions. For additional information about our critical accounting policies, see Note 1, Basis of Presentation and Summary of Significant Accounting Policies , and Note 2, Revenue from Contracts with Customers to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q and Part II Item 7 , Management’s Discussion and Analysis of Financial Condition and Results of Operation, under the heading of “Critical Accounting Estimates” in our Annual Report. There were no material changes during the three months ended March 31, 2025, to the items that we disclosed as our critical accounting policies and estimates in Part II, Item 7 of the Annual Report. Recent Accounting Pronouncements and Accounting Changes See Note 1, Basis of Presentation and Summary of Significant Accounting Policies , to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q, for a description of recent accounting pronouncements and accounting changes, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements. 32 Table of Contents Results of Operations Discussion of Financial Data for the Three months ended March 31, 2025 and 2024 Revenues, Costs of Revenues, and Gross Margin ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ March 31, ​ Change ​ (Dollars in thousands) 2025 2024 $ % Revenues: ​ ​ ​ ​ Analytics $ 42,471 ​ $ 38,463 ​ $ 4,008 10 % Integrated Yield Ramp 5,307 ​ 2,847 ​ 2,460 86 % Total revenues ​ 47,778 ​ ​ 41,310 ​ ​ 6,468 16 % Costs of revenues 12,955 ​ 13,529 ​ (574) (4) % Gross profit $ 34,823 ​ $ 27,781 ​ $ 7,042 25 % Gross margin 73 % 67 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Analytics revenue as a percentage of total revenues 89 % 93 % ​ Integrated Yield Ramp revenue as a percentage of total revenues 11 % 7 % ​ Analytics Revenue Analytics revenue increased $4.0 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase in Analytics revenue was driven by increases in revenues from Exensio and Cimetrix software licenses, the addition of revenues related to SecureWise products and services, and CV systems, partially offset by a decrease in revenues from DFI systems. Integrated Yield Ramp Revenue Integrated Yield Ramp revenue increased $2.5 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to higher Gainshare from increased customer wafer shipments at non-leading-edge nodes, partially offset by a decrease in hours worked on fixed-fees engagements. Our Integrated Yield Ramp revenue may continue to fluctuate from period to period primarily due to the contribution of Gainshare, which is dependent on many factors that are outside our control, including among others, continued production of ICs by our customers at facilities at which we generate Gainshare, sustained yield improvements by our customers, and whether we enter into new contracts containing Gainshare. Our Analytics and Integrated Yield Ramp revenues may also fluctuate in the future and are dependent on a number of factors, including the semiconductor industry’s continued acceptance of our products, services and solutions, the timing of purchases by existing and new customers, cancellations by existing customers, and our ability to attract new customers and penetrate new markets, supply chain challenges and further penetration of our current customer base. Fluctuations in future results may also occur if any of our significant customers renegotiate pre-existing contractual commitments, including due to adverse changes in their own business. Costs of Revenues Costs of revenues consist primarily of costs incurred to provide and support our services, costs recognized in connection with licensing our software, IT and facilities-related costs and amortization of acquired technology. Service costs include material costs, hardware costs (including cost of leased assets under sales-type lease), personnel-related costs (including compensation, employee benefits, bonus and stock-based compensation expense), subcontractor costs, overhead costs, travel expenses, and allocated facilities-related costs. Software license costs consist of costs associated with third-party cloud- 33 Table of Contents 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 $0.6 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, was primarily due to (i) a $1.5 million decrease in hardware costs and (ii) a $0.3 million decrease in facilities and IT-related costs including depreciation and amortization expense. These decreases were partially offset by (a) a $0.6 million increase in personnel-related costs due to higher wages, (b) a $0.4 million increase in subcontractor costs, and (c) a $0.1 million increase in third-party cloud-delivery costs. Gross Margin Gross margin increased 6 percentage points for the three months ended March 31, 2025, to 73%, compared to 67% for the three months ended March 31, 2024. The higher gross margin during the three months ended March 31, 2025, was primarily due to higher Analytics and Gainshare revenues and lower costs of revenues for the three months ended March 31, 2025. Operating Expenses: Research and Development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ March 31, ​ Change ​ (Dollars in thousands) 2025 2024 $ ​ % Research and development ​ $ 14,628 ​ $ 12,984 ​ $ 1,644 13 % As a percentage of total revenues ​ 31 % 31 % ​ 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 $1.6 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to (i) a $0.8 million increase in subcontractor fees primarily related to Cimetrix software, (ii) a $0.3 million increase in facilities and IT-related costs, (iii) a $0.3 million increase in personnel-related costs due to increased headcount, worldwide salary increases, and stock-based compensation expense, and (iv) a $0.2 million increase in third-party cloud-delivery costs. 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. Selling, General, and Administrative ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ March 31, ​ Change ​ (Dollars in thousands) 2025 2024 $ ​ % Selling, general, and administrative ​ $ 23,372 ​ $ 16,498 ​ $ 6,874 42 % As a percentage of total revenues ​ 49 % 40 % ​ 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 $6.9 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to (i) $4.3 million in non-recurring legal, finance, integration, and other costs related to the acquisition of SecureWise, (ii) a $1.9 million increase in personnel-related costs 34 Table of Contents mainly resulting from increased headcount, worldwide salary increases, bonus expense, and stock-based compensation expense, (iii) a $0.7 million increase in facilities and IT-related costs including shipping costs and depreciation expense, and (iv) a $0.5 million increase in subcontractor fees, partially offset by a $0.8 million decrease in general legal expenses. We anticipate our selling, general, and administrative expenses will fluctuate in absolute dollars from period to period as a result of cost control initiatives and to support increased selling efforts in the future. Amortization of Acquired Intangible Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ March 31, ​ Change ​ (Dollars in thousands) 2025 2024 $ ​ % Amortization of acquired intangible assets ​ $ 378 ​ $ 259 ​ $ 119 46 % Amortization of acquired intangible assets primarily consists of amortization of intangibles acquired as a result of certain business combinations. Interest Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ March 31, ​ Change ​ (Dollars in thousands) ​ 2025 2024 $ ​ % Interest expense ​ $ (311) ​ $ — ​ $ (311) — % Interest expense is from our long-term debt that was used in financing the acquisition of SecureWise, and amortization of debt discount and financing costs. Other Income (Expense), Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ March 31, ​ Change ​ (Dollars in thousands) ​ 2025 2024 $ ​ % Other income (expense), net ​ $ 870 ​ $ 1,692 ​ $ (822) 49 % Other income (expense), net, primarily consists of interest income and foreign currency transaction exchange gains and losses. Other income (expense), net decreased $0.8 million for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to (i) a $0.6 million decrease in interest income from cash, cash equivalents and short-term investments, and (ii) $0.2 million net unfavorable fluctuations in foreign currency exchange rates. Income Tax Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ March 31, ​ Change ​ (Dollars in thousands) ​ 2025 2024 $ ​ % Income tax expense ​ $ (36) ​ $ (125) ​ $ (89) (71) % Income tax expense decreased for the three months ended March 31, 2025, compared to the three months ended March 31, 2024, primarily due to changes in the foreign, federal 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. Our future tax rates may be adversely affected by a number of factors including increase in expenses not deductible for tax purposes, new or changing tax legislation in the United States and in foreign countries where 35 Table of Contents we are subject to tax jurisdictions, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, our ability to use tax attributes such as research and development tax credits and net operation losses, the tax effects of employee stock activity, audit examinations with adverse outcomes, changes in accounting principles generally accepted in the United States of America and the effectiveness of our tax planning strategies. Liquidity and Capital Resources As of March 31, 2025, our working capital, defined as total current assets less total current liabilities, was $76.3 million, compared to $145.4 million as of December 31, 2024. Total cash, cash equivalents, and short-term investments were $54.1 million as of March 31, 2025, compared to cash, cash equivalents, and short-term investments of $114.9 million as of December 31, 2024. As of March 31, 2025, and December 31, 2024, cash and cash equivalents held by our foreign subsidiaries were $15.0 million and $13.3 million, respectively. Our material cash requirements include interest payments on our debt, operating lease payments, and purchase obligations to support our operations. Refer to Part I, Item 1, Financial Statements, Note 13, Debt , Note 4, Leases , Note 14, Business Combination and Note 11, Commitments and Contingencies for details relating to our material cash requirements for debt, leasing arrangements, including future maturities of operating lease liabilities, and purchase obligations, 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 including repayment of long-term debt and corresponding interest for at least the next twelve months, and thereafter for the foreseeable future; however, we will continue to evaluate if we require additional funding to meet our longer-term needs. Term Loan and Revolving Credit Facility On March 7, 2025, we entered into a Credit Agreement (the “Credit Agreement”) with the lenders who are party to the Credit Agreement and the lenders who may become a party to the Credit Agreement pursuant to the terms thereof (the “Lenders”) and Wells Fargo Bank, National Association, as administrative agent to the Lenders (the “Agent”). The Credit Agreement provides for (a) a revolving credit facility in an aggregate principal amount of $45 million (the “Revolving Credit Facility”) and (b) a term loan facility in an aggregate principal amount of $25 million (the “Term Loan” and together with the Revolving Credit Facility, the “Credit Facilities”). Borrowings under the Credit Facilities will accrue interest at rates equal, at our election, to (i) the alternate base rate, which is defined as the highest of (a) the federal funds effective rate in effect from time to time plus 0.50%, (b) the prime commercial lending rate in effect from time to time, and (c) the daily simple secured overnight financing rate (“SOFR”) plus 1.00% or (ii) SOFR, plus, in each case, the applicable margin. The applicable margin for the Revolving Credit Facility borrowings bearing interest at the alternate base rate ranges from 1.00% to 1.75%, and the applicable margin for Revolving Credit Facility borrowings bearing interest based on the SOFR ranges from 2.00% to 2.75%, in each case, based on our consolidated total net leverage ratio as of the most recently ended fiscal quarter. The applicable margin for Term Loan borrowings bearing interest at the alternate base rate ranges from 1.00% to 1.75%, and the applicable margin for Term Loan borrowings bearing interest based on the SOFR ranges from 2.00% to 2.75%, in each case, based on our consolidated total net leverage ratio as of the most recently ended fiscal quarter. We will pay an annual commitment fee during the term of the Credit Agreement at a rate per annum equal to 0.50% for any undrawn portion of the Revolving Credit Facility. The Credit Agreement contains customary representations and warranties, as well as customary affirmative and negative covenants. Negative covenants include, among others, restrictions on the incurrence of debt, the incurrence of liens, the making of investments and distributions, dividends and stock buy-backs. In addition, the Credit Agreement requires that we maintain a consolidated total net leverage ratio of not greater than 3.00 to 1.00, and a consolidated fixed charge coverage ratio of not less than 1.25 to 1.00. As of March 31, 2025, we were in compliance with the covenants contained in the Credit Agreement. The Credit Agreement contains customary events of default. Upon the occurrence and during the continuance of an event of default, the Agent may declare the outstanding advances and all other obligations under the Credit Agreement immediately due and payable. 36 Table of Contents The obligations under the Credit Agreement are guaranteed by all present and future material domestic subsidiaries of the Company (collectively with the Company referred to herein as the “Credit Parties”), subject to customary exceptions, and are secured by the equity interests of the Credit Parties (other than the Company) and substantially all of the personal property owned by the Credit Parties, including 65% of the equity interests of certain foreign subsidiaries owned by the Credit Parties. The Company used the amounts borrowed under the Credit Facilities to finance, in part, the purchase price paid for the acquisition of SecureWise. Repurchase of Company’s Common Stock On April 15, 2024, the Board of Directors adopted a stock repurchase program (the “2024 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 from the adoption date. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors. The 2024 Program does not obligate the Company to acquire a minimum amount of shares and may be modified, suspended or terminated without prior notice. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ March 31, ​ ​ ​ (In thousands) 2025 2024 $ Change Net cash flows provided by (used in): ​ ​ ​ Operating activities ​ $ 8,640 ​ $ (1,862) ​ $ 10,502 Investing activities ​ (123,861) ​ (2,642) ​ (121,219) Financing activities ​ 67,958 ​ (8,752) ​ 76,710 Effect of exchange rate changes on cash and cash equivalents ​ 403 ​ (466) ​ 869 Net change in cash and cash equivalents ​ $ (46,860) ​ $ (13,722) ​ $ (33,138) Net Cash Flows Provided by (Used in) Operating Activities Cash flows provided by operating activities during the three months ended March 31, 2025, consisted of net loss, 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 $8.6 million for the three months ended March 31, 2025, compared to net cash used in operating activities of $1.9 million for the three months ended March 31, 2024. The increase in cash provided by operating activities between the periods was driven primarily by higher collections from customers, partially offset by (i) an increase in bonus payments under the Company’s bonus plan, and (ii) an increase in payments of vendor invoices. Net Cash Flows Used in Investing Activities Net cash used in investing activities was $123.9 million for the three months ended March 31, 2025, compared to $2.6 million for the three months ended March 31, 2024. For the three months ended March 31, 2025, cash used in investing activities primarily related to $129.7 million payments for the acquisition of SecureWise, net of cash acquired, $2.9 million purchases of short-term investments, and $8.2 million purchases and prepayments of property and equipment primarily related to our DFI systems, partially offset by $17.0 million proceeds from maturities and sales of short-term investments. 37 Table of Contents For the three months ended March 31, 2024, cash used in investing activities primarily related to $19.6 million purchases of short-term investments, and $2.0 million purchases of property and equipment primarily related to our DFI systems, partially offset by $19.0 million proceeds from maturities and sales of short-term investments. Net Cash Flows Provided by (Used in) Financing Activities Net cash provided by financing activities was $68.0 million for the three months ended March 31, 2025, compared to cash used in financing activities of $8.8 million for the three months ended March 31, 2024. For the three months ended March 31, 2025, net cash provided by financing activities primarily consisted of $69.2 million proceeds from long-term debt, net of debt financing costs, that was used in financing the acquisition of SecureWise, and $2.1 million proceeds from our employee stock purchase plan, offset by $3.3 million in cash payments for taxes related to net share settlement of equity awards. For the three months ended March 31, 2024, net cash used in financing activities primarily consisted of $6.9 million repurchases of common stock, $3.8 million cash payments for taxes related to net share settlement of equity awards, partially offset by $1.9 million proceeds from our employee stock purchase plan and exercise of stock options. Related Party Transactions Refer to Note 12, Strategic Partnership Agreement with Advantest and Related Party Transactions , to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, for the discussion about related party transactions between the Company and Advantest (as defined therein). Off-Balance Sheet Agreements As of March 31, 2025, we do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt.