Financial Data and Key Metrics Changes - Total revenues for the first quarter were $47.8 million, up 16% year over year [14] - Analytics revenue was $42.5 million, an increase of 10% year over year, but lower compared to the prior quarter [14] - IYR revenue increased significantly by 86% year over year, driven by new gainshare from customer engagement [14] - Gross margin for the first quarter was 77%, compared to 72% in the prior quarter and the same quarter last year [15] - Operating margin for the first quarter was 18%, consistent with the prior quarter and up from 12% year over year [16] - Net income for the quarter totaled $8.1 million, or $0.21 per share, up approximately 40% year over year [16] Business Line Data and Key Metrics Changes - Significant bookings were primarily for enterprise-wide solutions, particularly for Sapient's Manufacturing Hub Enterprise [5] - Exensio bookings were driven by Fabless and OSATs for offline analytics and test operations [5] - Symmetric's bookings were strong as equipment vendors utilized more runtime licenses [5] - SecureWise contributed less than one month of revenues, with expectations for IYR revenues to improve throughout the year [6] Market Data and Key Metrics Changes - The company anticipates growth of 21% to 23% for the year, despite macroeconomic uncertainties [11] - The semiconductor industry remains focused on advanced nodes and complex packaging, with no significant changes in customer behavior due to tariffs [10] Company Strategy and Development Direction - The company aims to establish itself as the leading independent data analytics platform optimized for the semiconductor industry [15] - Integration plans for SecureWise are being refined to enhance collaboration between OSATs, fabless foundries, and equipment vendors [8] - The company is focusing on enhancing its product offerings with machine learning and AI capabilities [15] Management's Comments on Operating Environment and Future Outlook - Management noted that the customer environment is mixed, with some recovering from a weak 2024 while others maintain momentum [4] - The company remains optimistic about its growth trajectory, reaffirming revenue growth estimates for the year [11] - Management highlighted the importance of flexibility and nimbleness for customers in the current uncertain environment [70] Other Important Information - The company completed the acquisition of SecureWise for $130 million, which is expected to be accretive to earnings and operating margins [13][55] - The company ended the quarter with cash and short-term investments of $54 million, down from $115 million due to the acquisition [17] Q&A Session Summary Question: Details on revenue guidance and analytics growth - Management confirmed that overall expectations are in line with initial guidance, with meaningful growth anticipated in IYR due to a low base [20][21] Question: Sales and marketing expense increase - The increase in sales and marketing expenses is aimed at enhancing engagement across a wide variety of product offerings and supporting ongoing pilots converting into bookings [24][26] Question: SecureWise integration plan - Customers appreciate the security features of SecureWise, and the integration is expected to enhance collaboration and operational efficiency [32][34] Question: Pipeline for Sapient Manufacturing Hub - Management expects to close additional contracts for SMH enterprise this year, driven by new workflows and AI capabilities [41] Question: DFI systems shipment details - Both shipped DFI systems were to existing logic customers, with expectations to ship additional systems in the second half of the year [46][47] Question: Challenges in analytics growth - Management noted that new innovations take time to be digested, and the complexity of deployments can delay substantial bookings [51][52] Question: Capital allocation strategy - The company prioritizes debt reduction while remaining open to share buybacks when opportunities arise [78] Question: SecureWise gross margin profile - SecureWise is a highly recurring revenue business, and its acquisition is expected to be accretive to overall gross margins [81][83]

PART I FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The company's Q1 2025 financial statements show **$47.8 million** in revenue and a **$3.0 million** net loss, with the SecureWise acquisition significantly altering the balance sheet through increased assets and **$70 million** in new debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $43,734 | $90,594 | ($46,860) | | Goodwill | $96,645 | $14,953 | $81,692 | | Intangible assets, net | $58,357 | $12,307 | $46,050 | | Total assets | $389,972 | $315,289 | $74,683 | | Long-term debt, net | $66,416 | $0 | $66,416 | | Total liabilities | $140,992 | $69,252 | $71,740 | | Total stockholders' equity | $248,980 | $246,037 | $2,943 | Condensed Consolidated Statements of Comprehensive Loss (in thousands, except per share) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $47,778 | $41,310 | +16% | | - Analytics | $42,471 | $38,463 | +10% | | - Integrated Yield Ramp | $5,307 | $2,847 | +86% | | Gross profit | $34,823 | $27,781 | +25% | | Loss from operations | ($3,555) | ($1,960) | +81% | | Net loss | ($3,032) | ($393) | +671% | | Net loss per share (basic & diluted) | ($0.08) | ($0.01) | ($0.07) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $8,640 | ($1,862) | | Net cash used in investing activities | ($123,861) | ($2,642) | | Net cash provided by (used in) financing activities | $67,958 | ($8,752) | | Net change in cash and cash equivalents | ($46,860) | ($13,722) | - On March 7, 2025, the company acquired SecureWise LLC for **$130.0 million** cash, financed by cash on hand and new credit facilities, with **$81.7 million** allocated to goodwill and **$47.1 million** to identifiable intangible assets[124](index=124&type=chunk)[126](index=126&type=chunk)[129](index=129&type=chunk) - The SecureWise acquisition was financed by a new Credit Agreement on March 7, 2025, including a **$45.0 million** revolving credit facility and a **$25.0 million** term loan, resulting in **$70.0 million** total debt outstanding as of March 31, 2025[114](index=114&type=chunk)[115](index=115&type=chunk)[121](index=121&type=chunk) - As of March 31, 2025, the company had approximately **$226.7 million** in remaining performance obligations, with over half expected to be recognized as revenue within the next two years[52](index=52&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the **16%** revenue growth to increased demand and SecureWise contributions, while the **$3.0 million** net loss resulted from a **42%** surge in SG&A expenses, primarily due to acquisition costs, with current liquidity deemed sufficient for future operations Revenue and Gross Margin Comparison (in thousands) | Metric | Q1 2025 | Q1 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **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%** | | **Gross profit** | **$34,823** | **$27,781** | **$7,042** | **25%** | | **Gross margin** | **73%** | **67%** | - | 6 p.p. | - The increase in Integrated Yield Ramp revenue was primarily due to higher Gainshare from increased customer wafer shipments at non-leading-edge nodes[154](index=154&type=chunk) - Selling, general, and administrative (SG&A) expenses increased by **$6.9 million** (**42%**) year-over-year, mainly due to **$4.3 million** in non-recurring costs related to the SecureWise acquisition and a **$1.9 million** increase in personnel-related costs[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk) - The company completed the acquisition of SecureWise LLC on March 7, 2025, to expand its secure data exchange (DEX) network and accelerate equipment makers' ability to derive value from data using the Exensio platform[138](index=138&type=chunk) - Cash and investments decreased from **$114.9 million** at year-end 2024 to **$54.1 million** as of March 31, 2025, primarily due to the SecureWise acquisition, which was partially financed by drawing **$70 million** from new credit facilities[176](index=176&type=chunk)[191](index=191&type=chunk)[195](index=195&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks primarily from interest rate fluctuations on its **$70.0 million** variable-rate debt, where a **100 basis point** increase would raise annual interest expense by **$0.5 million**, and from unhedged foreign currency exposures in international operations - The company is exposed to interest rate risk on its **$70.0 million** of variable-rate debt, where a **100 basis point** rate increase would raise annual interest expense by an average of **$0.5 million**[203](index=203&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk) - The company's investment portfolio of **$54.1 million** in cash, cash equivalents, and short-term U.S. Government securities is also subject to interest rate risk, though a **100 basis point** change is expected to have an immaterial impact on its fair value[201](index=201&type=chunk) - The company is exposed to foreign currency exchange risk as some revenues, expenditures, and cash balances are denominated in currencies such as the Euro, Yen, Chinese Yuan, New Taiwan Dollar, and Canadian Dollar, and does not currently engage in hedging activities[206](index=206&type=chunk) [Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with the recently acquired SecureWise business excluded from the internal control over financial reporting assessment as permitted by SEC guidance - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2025[207](index=207&type=chunk) - The company's management excluded the newly acquired SecureWise business from its assessment of internal control over financial reporting for the quarter ended March 31, 2025, as the acquisition was completed on March 7, 2025[208](index=208&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=65&type=section&id=Item%201.%20Legal%20Proceedings) The company is awaiting a tribunal decision in an ongoing arbitration proceeding initiated in May 2020 against SMIC for failure to pay fees - The company initiated arbitration against SMIC in May 2020 over unpaid fees, and after a hearing in February 2023 and final submissions, the company is awaiting the tribunal's judgment[110](index=110&type=chunk) [Risk Factors](index=65&type=section&id=Item%201A.%20Risk%20Factors) As of the filing date, there were no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024 - As of the filing date, there were no material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[211](index=211&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any of its common stock during the first quarter of 2025 - There were no stock repurchases during the first quarter of 2025[212](index=212&type=chunk) [Defaults Upon Senior Securities](index=67&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) None reported [Mine Safety Disclosures](index=67&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) None reported [Other Information](index=67&type=section&id=Item%205.%20Other%20Information) During the quarter ended March 31, 2025, no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter[215](index=215&type=chunk) [Exhibits](index=68&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Equity Purchase Agreement for the SecureWise acquisition, the new Credit Agreement, and certifications by the principal executive and financial officers

[Q1 2025 Management Report](index=1&type=section&id=Q1%202025%20Management%20Report) [Q1 2025 Results](index=3&type=section&id=Q1%202025%20Results) PDF Solutions reported Q1 2025 total revenues of **$47.8 million**, a 5% sequential decrease but 16% year-over-year increase, with lower Analytics revenue offset by a 146% surge in Integrated yield ramp revenue [Overview](index=3&type=section&id=Overview) Q1 2025 total revenues reached **$47.8 million**, with Analytics revenue down 11% and Integrated yield ramp revenue up 146%, resulting in a GAAP diluted loss per share of **($0.08)** and non-GAAP diluted EPS of **$0.21** Q1 2025 Key Financial Metrics (in millions) | Metric | Value | | :--- | :--- | | Total Revenues | $47.8 | | GAAP Gross Margin | 73% | | Non-GAAP Gross Margin | 77% | | GAAP Diluted EPS | ($0.08) | | Non-GAAP Diluted EPS | $0.21 | | Operating Cash Flow | $8.6 | | Cash Used for Capital Expenditures | $8.2 | - **Total Revenues:** **$47.8 million**, down 5% from Q4 2024 and up 16% from Q1 2024[8](index=8&type=chunk) - **Analytics Revenue:** **$42.5 million**, down 11% from Q4 2024 and up 10% from Q1 2024[8](index=8&type=chunk) - **Integrated Yield Ramp Revenue:** **$5.3 million**, up 146% from Q4 2024 and up 86% from Q1 2024[8](index=8&type=chunk) [Key Financial & Operating Metrics](index=4&type=section&id=Key%20Financial%20%26%20Operating%20Metrics) Q1 2025 revenues decreased to **$47.8 million**, while non-GAAP gross margin improved to **77%**; outstanding debt reached **$68.7 million**, and operating cash flow significantly improved to **$8.6 million** Quarterly Financial & Operating Metrics (in thousands) | Metric | Q1'25 | Q4'24 | Q1'24 | | :--- | :--- | :--- | :--- | | Revenues | $47,778 | $50,085 | $41,310 | | GAAP Gross Margin | 73% | 68% | 67% | | Non-GAAP Gross Margin | 77% | 72% | 72% | | Outstanding Debt | $68,656 | $— | $— | | Operating Cash Flow | $8,640 | $1,606 | ($1,862) | | Cash Used for Capital Expenditures (CAPEX) | $8,203 | $5,847 | $2,023 | [Revenue by Geographic Area](index=5&type=section&id=Revenue%20by%20Geographic%20Area) Q1 2025 revenue was primarily from the **United States (38%)** and **Japan (25%)**, with China's contribution nearly doubling to **17%** while 'Rest of the world' decreased to **17%** Quarterly Revenue by Geographic Area (in thousands) | Region | Q1'25 Revenue | % of Total | Q4'24 Revenue | % of Total | | :--- | :--- | :--- | :--- | :--- | | United States | $18,228 | 38% | $16,320 | 33% | | Japan | $11,736 | 25% | $11,932 | 24% | | China | $8,043 | 17% | $4,576 | 9% | | Taiwan | $1,494 | 3% | $1,150 | 2% | | Rest of the world | $8,277 | 17% | $16,107 | 32% | | **Total revenues** | **$47,778** | **100%** | **$50,085** | **100%** | [Q1 2025 Non-GAAP Results & Reconciliations](index=6&type=section&id=Q1%202025%20Non-GAAP%20Results%20%26%20Reconciliations) Q1 2025 non-GAAP results reconcile a GAAP net loss of **($3.0 million)** to a non-GAAP net income of **$8.1 million**, primarily by excluding **$6.6 million** in stock-based compensation and **$4.3 million** in non-recurring costs [Explanation of Non-GAAP Financial Measures](index=6&type=section&id=Explanation%20of%20Non-GAAP%20Financial%20Measures) Management uses non-GAAP measures to evaluate profitability and performance, excluding non-cash or non-recurring items like stock-based compensation and amortization of acquired intangibles - Non-GAAP measures are used by management to provide supplemental information on ongoing operations by excluding expenses that do not have a current effect on the future uses of cash or impact revenue generation[13](index=13&type=chunk) - Key Exclusions from GAAP: - Stock-based compensation expense[13](index=13&type=chunk) - Amortization of acquired technology and other intangible assets[13](index=13&type=chunk) - Amortization of debt issuance costs[13](index=13&type=chunk) - Non-recurring items such as certain legal proceedings and integration costs[13](index=13&type=chunk) - Related income tax effects and valuation allowance adjustments[13](index=13&type=chunk) [Reconciliation of GAAP to Non-GAAP Net Income](index=7&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Net%20Income) Q1 2025 GAAP net loss of **($3.0 million)** was reconciled to a non-GAAP net income of **$8.1 million**, primarily by adding back **$6.6 million** in stock-based compensation and **$4.3 million** in non-recurring costs Q1 2025 GAAP to Non-GAAP Net Income Reconciliation (in thousands) | Description | Amount | | :--- | :--- | | **GAAP net income (loss)** | **($3,032)** | | Stock-based compensation expense | $6,596 | | Amortization of acquired technology | $678 | | Amortization of other acquired intangible assets | $378 | | Non-recurring legal, finance, integration and other costs | $4,345 | | Other adjustments | $150 | | **Non-GAAP net income** | **$8,115** | Q1 2025 GAAP vs. Non-GAAP EPS | Metric | Value | | :--- | :--- | | GAAP net income (loss) per diluted share | ($0.08) | | Non-GAAP net income per diluted share | $0.21 | [Reconciliation of GAAP to Non-GAAP Spending by Function](index=8&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Spending%20by%20Function) Q1 2025 functional spending was adjusted from GAAP to non-GAAP by removing stock-based compensation, with SG&A expenses seeing the largest reduction from **$23.4 million** to **$16.1 million** Q1 2025 GAAP to Non-GAAP Spending Reconciliation (in thousands) | Spending by Function | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Cost of Revenue | $12,955 | ($2,020) | $10,935 | | Research & Development | $14,628 | ($2,419) | $12,209 | | Selling, General, & Administrative | $23,372 | ($7,295) | $16,077 | - Primary Adjustments to SG&A: - Stock-based compensation expense: **($2,835) thousand**[21](index=21&type=chunk) - Non-recurring legal, finance, integration and other costs: **($4,345) thousand**[21](index=21&type=chunk) - Expenses for certain legal proceedings: **($115) thousand**[21](index=21&type=chunk)

Financial Performance - Total revenues for Q1 2025 were $47.8 million, a decrease from $50.1 million in Q4 2024 but an increase from $41.3 million in Q1 2024 [3] - Analytics revenue for Q1 2025 was $42.5 million, down from $47.9 million in Q4 2024 but up from $38.5 million in Q1 2024 [3] - Integrated Yield Ramp revenue for Q1 2025 was $5.3 million, compared to $2.2 million in Q4 2024 and $2.8 million in Q1 2024 [3] Profitability Metrics - GAAP gross margin for Q1 2025 was 73%, up from 68% in Q4 2024 and 67% in Q1 2024 [4] - Non-GAAP gross margin for Q1 2025 was 77%, compared to 72% in both Q4 2024 and Q1 2024 [4] - GAAP net loss for Q1 2025 was $3.0 million, or ($0.08) per diluted share, compared to net income of $0.5 million, or $0.01 per diluted share in Q4 2024 [5] - Non-GAAP net income for Q1 2025 was $8.1 million, or $0.21 per diluted share, down from $9.9 million, or $0.25 per diluted share in Q4 2024 [6] Strategic Developments - The company experienced strong customer activity and platform development, driven by AI-driven digitization [7] - The acquisition of SecureWise was completed to enhance supply chain collaboration [10] - The company reaffirmed its annual revenue growth guidance of 21-23% for 2025 [7] Backlog and Financial Position - The backlog as of March 31, 2025, was $226.7 million [10] - Total assets increased to $389.972 million as of March 31, 2025, from $315.289 million at the end of 2024 [17][18]

Company Announcement - PDF Solutions, Inc. will release its First quarter fiscal 2025 financial results after the market close on May 8, 2025 [1] - A live teleconference will be hosted by CEO John Kibarian and CFO Adnan Raza on the same day at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to discuss the results [1] Participation Details - Analysts and investors are encouraged to pre-register for the live call at a provided link to receive dial-in information and a unique passcode [2] - Participants are advised to join the call ten minutes ahead of the scheduled time [2] Webcast Information - The teleconference will be webcast simultaneously on the company's website, with a replay available after the call on the investor relations site [3] Company Overview - PDF Solutions provides comprehensive data solutions aimed at improving yield, quality, and operational efficiency in the semiconductor and electronics industry [4] - The company's products and services are utilized by Fortune 500 companies to achieve smart manufacturing goals through data collection and advanced analytics [4] - Founded in 1991, PDF Solutions is headquartered in Santa Clara, California, with operations in North America, Europe, and Asia [5]

Core Insights - PDF Solutions, Inc. has completed the acquisition of secureWISE, LLC, enhancing its position in the semiconductor manufacturing equipment industry [1][2] - The acquisition is expected to significantly expand PDF Solutions' manufacturing connectivity network, covering most of the world's 300mm fabs [2] - The integration of secureWISE is anticipated to accelerate its adoption in the outsourced semiconductor assembly and test market [2] Company Overview - PDF Solutions provides comprehensive data solutions aimed at improving yield, quality, and operational efficiency in the semiconductor and electronics industry [4] - The company serves Fortune 500 clients by enabling smart manufacturing through data collection, advanced analytics, and machine learning [4] - Founded in 1991, PDF Solutions is headquartered in Santa Clara, California, with a global presence across North America, Europe, and Asia [5][6] secureWISE Overview - The secureWISE platform facilitates secure remote connectivity and collaboration in the semiconductor industry [7] - It is installed in over 90% of the world's 300mm semiconductor fabs, providing OEM suppliers with real-time access to their equipment [7] - The platform aims to deliver operational insights, enhance performance, and create new service revenue opportunities [7]

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) PDF Solutions provides data solutions to the semiconductor industry, generating revenue from Analytics and Integrated Yield Ramp services - The company derives revenues from two sources: **Analytics** (contract fees for on-premise software, hardware systems, SaaS, and professional services) and **Integrated Yield Ramp** (contract fees and value-based royalties called Gainshare)[28](index=28&type=chunk) - As of December 31, 2024, the company held **128 U.S. patents** with expiration dates ranging from 2025 through 2044, protecting technologies such as its CV and DFI systems and AI/ML inventions[36](index=36&type=chunk)[37](index=37&type=chunk) Customer Revenue Concentration | Year | Customer Concentration | Percentage of Revenue | | :--- | :--- | :--- | | 2024 | Two Customers | 31% | | 2023 | One Customer | 35% | | 2022 | Two Customers | 41% | Employee Distribution as of December 31, 2024 | Department | Number of Employees | | :--- | :--- | | Field Application Engineers | 174 | | Research and Development | 189 | | Sales and Marketing | 113 | | General and Administrative | 63 | | **Total** | **539** | | **Region** | **Number of Employees** | | :--- | :--- | | United States | 321 | | Asia | 180 | | Europe | 38 | [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including R&D challenges, sole-source provider reliance, customer concentration, and evolving export controls - The company relies on **sole-source providers** for specialized parts for its eProbe hardware and for some enabling software[102](index=102&type=chunk) - A significant portion of revenue comes from a limited number of customers, with **two customers accounting for 31% of total revenues** in 2024[112](index=112&type=chunk) - The company is subject to **complex and changing U.S. export regulations** (EAR) and economic sanctions (OFAC), which have restricted business with certain customers and in certain countries[115](index=115&type=chunk)[118](index=118&type=chunk) - The company and its third-party service providers face **evolving cybersecurity risks**, including hacking, ransomware, and phishing[129](index=129&type=chunk)[130](index=130&type=chunk)[133](index=133&type=chunk) - The planned **acquisition of SecureWise LLC**, announced in February 2025, and other potential acquisitions carry risks related to integration, unanticipated costs, and diversion of management's attention[160](index=160&type=chunk) [Item 1B. Unresolved Staff Comments](index=55&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the SEC - None[168](index=168&type=chunk) [Item 1C. Cybersecurity](index=55&type=section&id=Item%201C.%20Cybersecurity) The company manages cybersecurity risks through a NIST-guided framework, with Board oversight and no material incidents in over five years - The company's cybersecurity risk management process is guided by The National Institute of Standards and Technology (**NIST Cybersecurity Framework**)[171](index=171&type=chunk) - The **Audit Committee of the Board of Directors** is tasked with oversight of cybersecurity risk[181](index=181&type=chunk)[182](index=182&type=chunk) - For more than five years, the company has identified **no material cybersecurity incidents** that have materially impacted its business, operations, or financial condition[177](index=177&type=chunk) [Item 2. Properties](index=59&type=section&id=Item%202.%20Properties) The company leases its principal executive offices in Santa Clara, California, and maintains additional global office spaces - The principal executive offices are leased in Santa Clara, California, covering approximately **20,800 square feet** under a lease agreement that expires in August 2028[186](index=186&type=chunk) - Additional facilities are leased in various locations including Milpitas, CA; Pittsburgh, PA; Richardson, TX; Salt Lake City, UT; Shanghai, China; Canada; France; Germany; Italy; Japan; South Korea; and Taiwan[186](index=186&type=chunk) [Item 3. Legal Proceedings](index=61&type=section&id=Item%203.%20Legal%20Proceedings) The company is awaiting a decision in an arbitration proceeding initiated in 2020 against SMIC for unpaid fees - On May 6, 2020, the Company initiated **arbitration** with the Hong Kong International Arbitration Center against SMIC New Technology Research & Development (Shanghai) Corporation for failure to pay fees[191](index=191&type=chunk) - The Company seeks to recover unpaid fees and costs associated with the proceeding and is **awaiting a decision** from the Tribunal after submitting final arguments in August 2024[191](index=191&type=chunk) [Item 4. Mine Safety Disclosures](index=61&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[192](index=192&type=chunk) PART II [Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=62&type=section&id=Item%205.%20Market%20For%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq, has not paid dividends, and initiated a new **$40.0 million** stock repurchase program in April 2024 - The company's common stock trades on the Nasdaq Global Market under the symbol "**PDFS**"[195](index=195&type=chunk) - **No cash dividends** were paid in 2024, 2023, or 2022, and the company does not anticipate paying any in the foreseeable future[196](index=196&type=chunk) - On April 15, 2024, the Board of Directors adopted a new stock repurchase program authorizing the repurchase of up to **$40.0 million** of common stock over two years[203](index=203&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=63&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Total revenues increased **8%** to **$179.5 million** in 2024, driven by Analytics growth, with **$4.1 million** net income and **$114.9 million** in cash Financial Highlights for Fiscal Year 2024 (in millions) | Metric | 2024 | 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $179.5 | $165.8 | +$13.6 | +8% | | Analytics Revenue | $169.3 | $152.1 | +$17.2 | +11% | | Integrated Yield Ramp Revenue | $10.2 | $13.8 | -$3.5 | -26% | | Net Income | $4.1 | $3.1 | +$1.0 | +32% | - The company identifies **significant judgments in its revenue recognition process**, including determining standalone selling prices (SSP), estimating progress for percentage-of-completion contracts, and estimating variable Gainshare royalties[228](index=228&type=chunk)[229](index=229&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk) - A full valuation allowance of **$67.9 million** was maintained against U.S. federal and state net deferred tax assets as of December 31, 2024[233](index=233&type=chunk) Cash Flow Summary (Year Ended Dec 31, in thousands) | | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,703 | $14,600 | | Net cash used in investing activities | ($5,936) | ($28,991) | | Net cash used in financing activities | ($11,233) | ($5,890) | - As of December 31, 2024, the company had contractual purchase obligations of **$30.8 million**, majority due within the next 12 months[291](index=291&type=chunk)[419](index=419&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=87&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rate fluctuations on its **$114.9 million** cash portfolio and foreign currency exposure, without using derivatives - The company has interest rate risk related to its cash, cash equivalents, and short-term investments portfolio, which totaled **$114.9 million** as of December 31, 2024[293](index=293&type=chunk) - **Foreign currency exchange risk** exists as certain balances are denominated in local currencies, but the company did not use any foreign currency derivative instruments in 2022, 2023, or 2024[297](index=297&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=90&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The audited financial statements show **$315.3 million** in total assets for 2024, with Revenue Recognition noted as a Critical Audit Matter, and a **$130 million** acquisition announced post-year-end - The independent auditor, BPM LLP, identified **Revenue Recognition** as a Critical Audit Matter due to significant management judgments[303](index=303&type=chunk)[308](index=308&type=chunk) Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $205,979 | $197,848 | | Total assets | $315,289 | $290,136 | | Total current liabilities | $60,542 | $50,843 | | Total liabilities | $69,252 | $61,190 | | Total stockholders' equity | $246,037 | $228,946 | Consolidated Income Statement Data (in thousands, except per share) | | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Total revenues | $179,465 | $165,835 | | Gross profit | $125,321 | $114,086 | | Income before income tax | $6,579 | $4,869 | | Net income | $4,057 | $3,105 | | Diluted EPS | $0.10 | $0.08 | - As of December 31, 2024, the company had **$221.4 million** in remaining performance obligations from customer contracts, mostly expected to be recognized over the next two years[397](index=397&type=chunk) - On February 19, 2025, the company agreed to acquire SecureWise LLC for a cash purchase price of **$130 million**, expected to close in Q1 2025[472](index=472&type=chunk)[475](index=475&type=chunk)[476](index=476&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=145&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes or disagreements with its accountants regarding financial disclosure - None[478](index=478&type=chunk) [Item 9A. Controls and Procedures](index=145&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024 - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2024[479](index=479&type=chunk) - Management's assessment concluded that **internal control over financial reporting was effective** as of December 31, 2024, based on the COSO framework, and was affirmed by BPM LLP[480](index=480&type=chunk)[481](index=481&type=chunk) [Item 9B. Other Information](index=145&type=section&id=Item%209B.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during Q4 2024 - **No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement** or non-Rule 10b5-1 trading arrangement during the quarter ended December 31, 2024[483](index=483&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=145&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - None[484](index=484&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=146&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement [Item 11. Executive Compensation](index=146&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation details are incorporated by reference from the definitive Proxy Statement [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=146&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership and equity compensation plan information is incorporated by reference from the definitive Proxy Statement [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=146&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Related party transactions and director independence information is incorporated by reference from the definitive Proxy Statement [Item 14. Principal Accountant Fees and Services](index=146&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Principal accountant fees and services information is incorporated by reference from the definitive Proxy Statement PART IV [Item 15. Exhibits and Financial Statement Schedules](index=148&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits, including key agreements like the SecureWise acquisition [Item 16. Form 10-K Summary](index=155&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[512](index=512&type=chunk)

Core Viewpoint - PDF Solutions, Inc. has announced the acquisition of secureWISE, LLC, a leading secure remote connectivity solution in the semiconductor manufacturing equipment industry, for $130 million, which is expected to enhance its data analytics capabilities and collaboration within the semiconductor ecosystem [1][7][9]. Company Overview - PDF Solutions provides comprehensive data solutions aimed at improving yield, quality, and operational efficiency in the semiconductor and electronics industry [13]. - The company has a global presence with operations in North America, Europe, and Asia, and serves Fortune 500 companies [14][15]. Acquisition Details - The acquisition of secureWISE is valued at $130 million, funded through cash on hand and $70 million in new bank debt, and is expected to close in the first quarter of 2025 [7][9]. - secureWISE is widely used in the semiconductor industry, with applications built on its network to deliver equipment analytics [2][5]. Industry Context - The semiconductor industry is increasingly distributed, necessitating secure collaboration and integration among various stakeholders [4]. - secureWISE is installed in over 90% of the world's 300mm semiconductor fabs, highlighting its significance in the industry [17]. Expected Benefits - The acquisition is anticipated to accelerate the ability of equipment manufacturers to derive value from equipment data by integrating with PDF Solutions' Exensio analytics software [5][6]. - It will enhance the capabilities of PDF Solutions' secure DEX OSAT network, facilitating collaboration among equipment makers, fab operators, and fabless companies [6]. Financial Outlook - Assuming the acquisition closes as planned, PDF Solutions expects a revenue growth rate of 21% to 23% year-over-year for 2025, with a target operating margin of 20% [9].

Financial Data and Key Metrics Changes - For Q4 2024, total revenues reached $50.1 million, representing a 22% year-over-year growth, exceeding the long-term growth target [20] - Full-year 2024 total revenues were $179.5 million, an 8% increase from $165.8 million in 2023, with significant growth occurring in the second half of the year [20][21] - Gross margin for Q4 was 72%, while the full-year gross margin was 74%, moving closer to the target model of 75% [24][27] Business Line Data and Key Metrics Changes - Analytics revenue grew 22% in Q4 compared to the same period last year and accounted for 96% of total revenue for the quarter [20][22] - The DFI eProbe systems saw strong momentum, with successful conversions from evaluations to sales for major semiconductor companies [21][22] - Exensio modules, including process control and ML ops, are expected to drive most bookings in 2025 [15][28] Market Data and Key Metrics Changes - Customers in advanced logic, high bandwidth memory, and advanced packaging are investing, while other sectors exhibit a more cautious outlook [12][13] - The semiconductor industry is projected to experience mixed growth, with total revenues expected to grow at a rate approaching 15% year-over-year [17][27] Company Strategy and Development Direction - The company aims to build upon accomplishments in 2024, expanding applications for the eProbe in advanced logic and DRAM [13][28] - The strategy includes a shift towards a model where customers can purchase machines and optionally subscribe to application services and software [14][66] - The company remains committed to a long-term target model of 20% year-over-year revenue growth, 75% gross margin, and 20% operating margin [27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth returning in the second half of 2024 and highlighted customer interest in products and solutions [12][21] - The outlook for 2025 reflects both short-term weaknesses in the semiconductor industry and strengths in the company's pipeline, driven by macro trends such as distributed manufacturing and AI [27][28] Other Important Information - The company reported positive operating cash flow of approximately $10 million and spent about $18 million on CapEx related to the DFI ecosystem [26] - The accounts receivable balance was elevated due to timing and billing, but management expressed confidence in collections [60][62] Q&A Session Summary Question: Can you provide more details on the eProbe pipeline? - The eProbe sales will include both repeat sales to existing customers and new sales to new customers, with a focus on advanced logic and DRAM applications [35][36] Question: What is the status of the backlog? - The backlog decreased from $239 million in Q3 to $221 million, attributed to the nature of the new sales model [34][39] Question: How is customer adoption of model ops impacting growth? - Customer receptivity to model ops has been high, with ongoing pilots expected to contribute to business growth in 2025 [52][53] Question: What is the impact of elevated accounts receivable on cash flow? - The elevated accounts receivable is a matter of timing and billing, with management confident in the progress of collections [60][62] Question: How are management changes at key customers affecting business? - Management changes at customers have not significantly impacted business, as the company has diversified its customer base [72][76] Question: Is there increased activity in advanced packaging due to market conditions? - The company is seeing increased activity in advanced packaging, particularly from leading-edge customers who are relying more on OSAT partners [80][82] Question: Are there opportunities in HBM DRAM with Exensio? - The company is starting to penetrate HBM DRAM accounts, particularly through the eProbe, which has reintroduced the company to this market segment [87][89]

PDF Solutions, Inc. (NASDAQ:PDFS) Q4 2024 Earnings Conference Call February 13, 2025 5:00 PM ET Company Participants John Kibarian - President and CEO Adnan Raza - CFO Conference Call Participants Blair Abernethy - Rosenblatt Securities William Jellison - D.A. Davidson & Company Gus Richard - Northland Capital Markets Operator Good day, everyone, and welcome to the PDF Solutions, Inc. Conference call to discuss its financial results for the fourth quarter and year-end 2024, ending Tuesday, December 31, 2024 ...