PDF Solutions(PDFS) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of PDF Solutions, Inc. for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, statements of comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial components Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | ASSETS | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :------------------ | | Cash and cash equivalents | $37,415 | $90,594 | | Short-term investments | $2,987 | $24,291 | | Accounts receivable, net | $69,264 | $73,649 | | Total current assets | $134,790 | $205,979 | | Property and equipment, net | $61,853 | $48,465 | | Goodwill | $96,798 | $14,953 | | Intangible assets, net | $56,330 | $12,307 | | Total assets | $391,133 | $315,289 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $6,555 | $8,255 | | Deferred revenues – current portion | $23,363 | $25,005 | | Current portion of long-term debt, net | $2,240 | — | | Total current liabilities | $56,963 | $60,542 | | Long-term debt, net | $65,877 | — | | Total liabilities | $133,613 | $69,252 | | Total stockholders' equity | $257,520 | $246,037 | | Total liabilities and stockholders' equity | $391,133 | $315,289 | - Total assets increased by $75.8 million (24.0%) from $315.3 million at December 31, 2024, to $391.1 million at June 30, 2025, primarily driven by significant increases in goodwill and intangible assets due to the SecureWise acquisition[8][59][117] - Total liabilities increased by $64.4 million (93.0%) from $69.3 million at December 31, 2024, to $133.6 million at June 30, 2025, mainly due to the addition of long-term debt to finance the SecureWise acquisition[8][107][117] Condensed Consolidated Statements of Comprehensive Income (Loss) This statement details the company's revenues, expenses, and net income or loss over specific reporting periods Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $51,728 | $41,661 | $99,506 | $82,971 | | Costs of revenues | $14,886 | $12,230 | $27,841 | $25,759 | | Income (loss) from operations | $1,117 | $264 | $(2,438) | $(1,696) | | Net income (loss) | $1,146 | $1,705 | $(1,886) | $1,312 | | Basic EPS | $0.03 | $0.04 | $(0.05) | $0.03 | | Diluted EPS | $0.03 | $0.04 | $(0.05) | $0.03 | - Total revenues increased by 24% to $51.7 million for Q2 2025 and by 20% to $99.5 million for H1 2025, compared to the respective prior periods, primarily driven by growth in Analytics revenue[9][135][140] - Net income decreased to $1.1 million for Q2 2025 from $1.7 million in Q2 2024, and the company reported a net loss of $1.9 million for H1 2025 compared to a net income of $1.3 million in H1 2024, largely due to increased operating expenses, including acquisition costs for SecureWise, and interest expense[9][135][140] Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in the company's equity accounts, including common stock, retained earnings, and other comprehensive income Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Component | Balance, Dec 31, 2024 | Shares Issued (Equity Plans) | Shares Withheld (Taxes) | Stock-based Comp. Expense | Comprehensive Income (Loss) | Balance, June 30, 2025 | | :-------------------------- | :-------------------- | :--------------------------- | :---------------------- | :------------------------ | :-------------------------- | :--------------------- | | Common Stock (Shares) | 38,801 | 362 | — | — | — | 39,163 | | Common Stock (Amount) | $6 | — | — | — | — | $6 | | Additional Paid-In Capital | $502,902 | $2,155 | — | $13,000 | — | $518,055 | | Treasury Stock (Shares) | 11,916 | — | 135 | — | — | 12,051 | | Treasury Stock (Amount) | $(159,352) | — | $(3,535) | — | — | $(162,887) | | Accumulated Deficit | $(93,988) | — | — | — | $(1,886) | $(95,874) | | Accumulated Other Comp. Loss | $(3,531) | — | — | — | $1,751 | $(1,780) | | Total Stockholders' Equity | $246,037 | $2,155 | $(3,535) | $13,000 | $(135) | $257,520 | - Total stockholders' equity increased by $11.5 million from $246.0 million at December 31, 2024, to $257.5 million at June 30, 2025[8][10] - The increase in stockholders' equity was primarily driven by stock-based compensation expense of $13.0 million and shares issued under equity plans, partially offset by a net loss for the six months ended June 30, 2025, and shares withheld for taxes related to equity awards[10] Condensed Consolidated Statements of Cash Flows This statement reports the cash generated and used by the company across operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $3,425 | $(1,178) | | Net cash provided by (used in) investing activities | $(124,246) | $4,193 | | Net cash provided by (used in) financing activities | $66,645 | $(9,153) | | Effect of exchange rate changes on cash and cash equivalents | $997 | $(853) | | Net change in cash and cash equivalents | $(53,179) | $(6,991) | | Cash and cash equivalents at end of period | $37,415 | $91,987 | - Net cash provided by operating activities significantly improved to $3.4 million for H1 2025, compared to net cash used of $1.2 million in H1 2024, primarily due to higher customer collections[183] - Net cash used in investing activities dramatically increased to $124.2 million in H1 2025, primarily due to the $129.7 million payment for the SecureWise acquisition[184][185] - Net cash provided by financing activities was $66.6 million in H1 2025, a substantial increase from net cash used of $9.2 million in H1 2024, driven by $69.6 million in proceeds from long-term debt to finance the SecureWise acquisition[187][188] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Basis of Presentation and Summary of Significant Accounting Policies This note describes the financial statement preparation basis and outlines the company's key accounting policies and estimates - The interim unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and GAAP, reflecting all necessary recurring adjustments[15] - Significant estimates include revenue recognition, useful lives of assets, fair value of convertible notes, credit loss allowance, goodwill impairment, deferred tax assets, lease obligations, stock-based compensation, and income tax uncertainties[17] - The company is evaluating the impact of new FASB ASUs: ASU 2023-09 (Income Tax Disclosures, effective 2025), ASU 2024-03 (Expense Disaggregation, effective 2026), and ASU 2025-05 (Credit Losses, effective 2025)[19][20][21] 2. Revenue from Contracts with Customers This note details the company's revenue recognition policies and disaggregates revenue by source and timing of transfer - Revenue is derived from two sources: Analytics (licenses, SaaS, DFI/CV systems) and Integrated Yield Ramp (performance incentives based on yield achievement, 'Gainshare')[23][27][35] Disaggregation of Revenue by Timing of Transfer | Timing of Revenue | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Over time | 70% | 72% | 65% | 69% | | Point-in-time | 30% | 28% | 35% | 31% | | Total | 100% | 100% | 100% | 100% | - International revenues accounted for approximately 61% and 62% of total revenues during the three and six months ended June 30, 2025, respectively[39] Contract Balances (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :------------------ | | Total contract assets | $8,167 | $3,841 | | Total deferred revenues | $24,471 | $26,517 | | Total capitalized direct sales commission costs | $6,541 | $5,314 | - As of June 30, 2025, the aggregate amount of transaction price allocated to remaining performance obligations was approximately $232.6 million, with more than half expected to be recognized over the next two years[49] 3. Balance Sheet Components This note provides detailed breakdowns and explanations for various asset and liability accounts on the balance sheet - Unbilled accounts receivable increased to $29.3 million at June 30, 2025, from $23.0 million at December 31, 2024[54] Prepaid Expenses and Other Current Assets (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :------------------ | | Prepaid expense | $8,112 | $6,481 | | Contract assets | $7,930 | $3,224 | | Costs capitalized to obtain revenue contracts | $2,381 | $2,929 | | Net investments in sales-type leases - current portion | $5,014 | $4,526 | | Income tax receivable | $1,687 | $285 | | Total prepaid expenses and other current assets | $25,124 | $17,445 | Property and Equipment, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :------------------ | | Total property and equipment | $110,234 | $95,416 | | Less: Accumulated depreciation and amortization | $(48,381) | $(46,951) | | Total property and equipment, net | $61,853 | $48,465 | - Goodwill increased significantly by $81.8 million to $96.8 million at June 30, 2025, primarily due to the acquisition of SecureWise LLC[59] Intangible Assets, Net (in thousands) | Item | June 30, 2025 Net Carrying Amount | December 31, 2024 Net Carrying Amount | | :----------------------------------- | :-------------------------------- | :---------------------------------- | | Customer relationships | $29,672 | $1,633 | | Developed technology | $19,839 | $9,965 | | Tradename and trademarks | $6,631 | $478 | | Patent | $188 | $231 | | Noncompetition agreements | — | — | | Total | $56,330 | $12,307 | - Total amortization expense for acquired intangible assets was $2.1 million for Q2 2025 and $3.1 million for H1 2025, significantly higher than prior periods due to recent acquisitions[60] 4. Leases This note outlines the company's lease arrangements, related expenses, and key lease terms - The company leases administrative and sales offices and equipment under non-cancellable operating leases expiring through 2031[65] Lease Expense (in thousands) | Lease Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease expense | $435 | $379 | $849 | $760 | | Short-term lease and variable lease expense | $193 | $272 | $400 | $486 | | Total lease expense | $628 | $651 | $1,249 | $1,246 | - The weighted average remaining lease term for operating leases was 3.4 years with a weighted average discount rate of 6.2% as of June 30, 2025[67] 5. Stockholders' Equity This note details changes in stockholders' equity, including stock repurchase programs and equity transactions - The 2022 stock repurchase program expired on April 11, 2024, with a total of 937,501 shares repurchased for $24.3 million[68] - A new 2024 stock repurchase program was adopted on April 15, 2024, authorizing up to $40.0 million in repurchases over two years, but no shares have been repurchased under this program as of June 30, 2025[69] 6. Employee Benefit Plans This note describes the company's employee stock purchase plan and stock-based compensation arrangements - Under the 2021 Employee Stock Purchase Plan, 90,076 shares were issued in H1 2025 at a weighted average price of $23.68 per share[72] - Unrecognized compensation cost related to the 2021 Purchase Plan was $3.7 million as of June 30, 2025, to be recognized over 1.6 years[72] Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Costs of revenues | $1,257 | $1,185 | $2,599 | $2,385 | | Research and development | $2,251 | $2,063 | $4,670 | $4,265 | | Selling, general, and administrative | $2,691 | $2,452 | $5,526 | $5,160 | | Total stock-based compensation expense | $6,199 | $5,700 | $12,795 | $11,810 | - Total unrecognized compensation cost related to RSUs was $38.0 million as of June 30, 2025, expected to be recognized over 2.3 years[80] 7. Income Taxes This note provides information on income tax expense, effective tax rates, and unrecognized tax benefits - The company reported an income tax benefit of $1.1 million for H1 2025, a decrease of $1.2 million compared to an expense of $(0.2) million in H1 2024[82] - The effective tax rate was 36% for H1 2025, up from 11% for H1 2024, primarily due to changes in foreign, federal, and state taxes and the recognition of worldwide pre-tax income (loss)[82] - Unrecognized tax benefits totaled $17.3 million as of June 30, 2025, with $2.4 million potentially affecting the effective tax rate if recognized[83] - The recently enacted One Big Beautiful Bill Act (OBBBA) in the U.S. (July 4, 2025) includes significant corporate tax provisions, which the company is currently assessing for impact on future financial statements[86] 8. Net Income (Loss) Per Share This note presents the calculation of basic and diluted net income or loss per share Net Income (Loss) Per Share (in thousands except per share amount) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $1,146 | $1,705 | $(1,886) | $1,312 | | Basic EPS | $0.03 | $0.04 | $(0.05) | $0.03 | | Diluted EPS | $0.03 | $0.04 | $(0.05) | $0.03 | - For the six months ended June 30, 2025, diluted net loss per share was the same as basic net loss per share ($0.05) because the company was in a loss position, making potential common shares anti-dilutive[87] Anti-Dilutive Potential Common Shares (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Non-vested restricted stock units | 1,164 | 556 | 1,518 | 571 | | Outstanding stock options | 6 | — | 26 | — | | Shares issuable under employee stock purchase plan | 268 | — | 268 | — | | Total | 1,438 | 556 | 1,812 | 571 | 9. Customer and Geographic Information This note disaggregates revenue by major customers and geographic regions, highlighting market concentration - The company operates as one operating and reporting segment, providing differentiated data and analytics solutions to the semiconductor and electronics industries[90] Revenues from Major Customers (as % of total revenues) | Customer | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | A | 19% | 24% | 17% | 23% | | B | 12% | *% | 15% | 14% | | C | 17% | *% | 14% | *% | Revenues by Geographic Area (in thousands) | Geographic Area | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $19,954 (39%) | $19,223 (46%) | $38,182 (39%) | $36,956 (45%) | | Japan | $9,304 (18%) | $7,932 (19%) | $21,040 (21%) | $19,220 (23%) | | China | $12,190 (23%) | $7,000 (17%) | $20,233 (20%) | $11,853 (14%) | | Rest of the world | $10,280 (20%) | $7,506 (18%) | $20,051 (20%) | $14,942 (18%) | | Total revenues | $51,728 (100%) | $41,661 (100%) | $99,506 (100%) | $82,971 (100%) | 10. Fair Value Measurements This note details the fair value hierarchy and measurements for the company's financial instruments - The company categorizes financial instruments into a three-level fair value hierarchy based on the observability of inputs[93] Fair Value Measurements Using (in thousands) | Assets | Classification | June 30, 2025 | Level 1 | Level 2 | Level 3 | | :----------------------------------- | :------------------------------- | :------------ | :-------- | :-------- | :-------- | | Money market mutual funds | Cash equivalents | $1,361 | $1,361 | — | — | | U.S. Government securities | Short-term investments | $2,987 | $2,987 | — | — | | Convertible note receivable | Other non-current assets | $2,087 | — | — | $2,087 | | Total | | $6,435 | $4,348 | — | $2,087 | - The convertible note receivable is measured using Level 3 inputs, reflecting unobservable value drivers[94] 11. Commitments and Contingencies This note discloses the company's purchase obligations, legal proceedings, and warranty indemnification commitments - The company has purchase obligations totaling $36.1 million as of June 30, 2025, with the majority due within the next 12 months[99] - The company is involved in an arbitration proceeding against SMIC New Technology Research & Development (Shanghai) Corporation for unpaid fees, with a decision pending from the Tribunal[103] - The company provides standard product warranties and indemnifies customers against intellectual property infringement claims, with historically insignificant related costs[97][98] 12. Strategic Partnership Agreement with Advantest and Related Party Transactions This note describes the strategic partnership with Advantest and related financial transactions - The company has a long-term strategic partnership with Advantest Corporation, established in July 2020, involving equity investment, cloud-based application development, commercial licensing, and a 5-year Exensio analytics software subscription[104] Analytics Revenue from Advantest (in millions) | Period | 2025 | 2024 | | :----------------------------------- | :--- | :--- | | Three Months Ended June 30, | $3.5 | $3.0 | | Six Months Ended June 30, | $7.1 | $5.9 | - Deferred revenue from Advantest decreased from $8.3 million at December 31, 2024, to $2.3 million at June 30, 2025[105] 13. Debt This note provides details on the company's debt instruments, including terms, interest rates, and future principal payments Debt as of June 30, 2025 (in thousands) | Item | Amount | | :----------------------------------- | :----- | | Term loan | $24,375 | | Revolving credit facility | $45,000 | | Total debt (principal amount) | $69,375 | | Unamortized debt discount and financing costs | $(1,258) | | Total debt, net | $68,117 | | Current portion of long-term debt, net | $2,240 | | Long-term debt, net | $65,877 | - The company entered into a Credit Agreement on March 7, 2025, providing a $45.0 million revolving credit facility and a $25.0 million term loan facility, primarily to finance the SecureWise acquisition[107][108][114] - Borrowings accrue interest at variable rates based on SOFR or an alternate base rate, plus an applicable margin, and the company was in compliance with all debt covenants as of June 30, 2025[110][111] Estimated Future Principal Payments of Total Long-Term Debt (in thousands) | Year Ending December 31, | Amount | | :----------------------------------- | :----- | | 2025 (remaining six months) | $1,250 | | 2026 | $2,500 | | 2027 | $2,500 | | 2028 | $2,500 | | 2029 | $2,500 | | 2030 | $58,125 | | Total future principal payments of long-term debt | $69,375 | 14. Business Combination This note details the acquisition of SecureWise LLC, including the purchase price allocation and strategic rationale - On March 7, 2025, the company completed the acquisition of SecureWise LLC for a cash purchase price of $130.0 million, financed by cash on hand and new credit facilities[117] - The acquisition is expected to accelerate equipment makers' ability to leverage Exensio analytics software and expand the secure data exchange network[118] Preliminary Purchase Price Allocation for SecureWise Acquisition (in thousands) | Item | Amount | Amortization Period (Years) | | :----------------------------------- | :----- | :-------------------------- | | Cash | $1,049 | | | Accounts receivable | $2,969 | | | Prepaid and other assets | $1,049 | | | Fixed assets | $1,592 | | | Trademark | $6,600 | 5 | | Customer relationships | $28,900 | 13 | | Developed technology | $11,600 | 7 | | Goodwill | $81,799 | N/A | | Accounts payable and other current liabilities | $(4,791) | | | Total purchase price allocation | $130,767 | | - Transaction costs related to the SecureWise acquisition amounted to $5.4 million, with $4.5 million recorded in H1 2025[120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and cash flows, highlighting key performance drivers, industry trends, critical accounting policies, and liquidity. It covers revenue and expense analysis, the impact of the SecureWise acquisition, and market risks Forward-Looking Statements This section cautions readers about statements that project future events or results, which are subject to various risks and uncertainties - The discussion contains forward-looking statements subject to various risks and uncertainties, including business strategy, industry trends, macroeconomic factors, geopolitical tensions, and regulatory changes[126] Overview This section provides a general description of the company's business, products, services, and global operations - PDF Solutions offers products and services to the semiconductor and electronics industries, focusing on data connection, collection, management, transfer, and analysis to improve yield and quality[128] - Revenue is primarily derived from Analytics (software licenses, professional services, SaaS) and Integrated Yield Ramp (value-based variable fees or 'Gainshare')[128] - The company is headquartered in Santa Clara, California, with global operations in Canada, China, France, Germany, Italy, Japan, Korea, and Taiwan[129] Acquisition of SecureWise LLC This section discusses the strategic rationale and expected benefits of the SecureWise LLC acquisition - The acquisition of SecureWise LLC on March 7, 2025, adds secure remote connectivity solutions to the product portfolio[130] - This acquisition is expected to accelerate equipment makers' ability to leverage Exensio analytics software and expand the secure data exchange (DEX) network for chip manufacturing optimization[130] Industry Trends This section analyzes key industry developments, including technological advancements, market demand, and geopolitical factors affecting the business - Industry 4.0 and cloud computing are driving increased innovation in semiconductor manufacturing and analytics, leading to greater demand for cloud-based analytics programs[131] - Challenges in adopting Industry 4.0 and secure cloud computing create opportunities for the company's advanced analytics capabilities and supporting infrastructure[131] - Geopolitical tensions, changing export controls (especially concerning China), and uneven global economic performance (leading to lower wafer shipments and soft demand) may affect business opportunities and revenue[132][133][134][136] Financial Highlights This section summarizes key financial performance metrics, including revenues, net income, and segment-specific results Financial Highlights (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $51.7 | $41.6 | $99.5 | $82.9 | | Analytics revenue | $48.8 | $38.1 | $91.3 | $76.5 | | Integrated Yield Ramp revenue | $2.9 | $3.5 | $8.2 | $6.3 | | Net income (loss) | $1.1 | $1.7 | $(1.9) | $1.3 | | Costs of revenues (3-month change) | +$2.7 | | | | | Costs of revenues (6-month change) | | | +$2.1 | | - Analytics revenue increased by 28% for Q2 2025 and 19% for H1 2025, driven by CV systems, secureWISE products/services, and DFI systems, partially offset by decreased Exensio software licenses[135][140] - Net income decreased for Q2 2025 and resulted in a net loss for H1 2025, primarily due to increased overall costs and expenses, including acquisition costs for SecureWise, and higher R&D and SG&A expenses[135][140] Critical Accounting Policies This section discusses the significant accounting policies and estimates that require management's judgment and assumptions - The preparation of financial statements requires significant estimates and assumptions, particularly for revenue recognition, valuation of long-lived assets (including goodwill and intangibles), stock-based compensation, and deferred tax assets[137] - There were no material changes to the critical accounting policies and estimates disclosed in the Annual Report on Form 10-K for the three and six months ended June 30, 2025[138] Recent Accounting Pronouncements and Accounting Changes This section refers to disclosures regarding new accounting standards and their potential impact on the financial statements - The company refers to Note 1 for a description of recent accounting pronouncements and changes, including their expected adoption dates and estimated effects[139] Revenues, Costs of Revenues, and Gross Margin This section analyzes the company's revenue streams, associated costs, and overall profitability margins Revenues, Costs of Revenues, and Gross Margin (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Analytics Revenues | $48,822 | $38,114 | $10,708 | 28% | $91,293 | $76,577 | $14,716 | 19% | | Integrated Yield Ramp Revenues | $2,906 | $3,547 | $(641) | (18)% | $8,213 | $6,394 | $1,819 | 28% | | Total revenues | $51,728 | $41,661 | $10,067 | 24% | $99,506 | $82,971 | $16,535 | 20% | | Costs of revenues | $14,886 | $12,230 | $2,656 | 22% | $27,841 | $25,759 | $2,082 | 8% | | Gross profit | $36,842 | $29,431 | $7,411 | 25% | $71,665 | $57,212 | $14,453 | 25% | | Gross margin | 71% | 71% | | | 72% | 69% | | | - Analytics revenue growth in Q2 2025 was primarily driven by CV systems, secureWISE products/services, and DFI systems, while Integrated Yield Ramp revenue decreased due to fewer fixed-fee engagement hours, partially offset by higher Gainshare[142][144] - Costs of revenues increased in both periods due to higher subcontractor costs, facilities/IT, hardware, and personnel-related costs[149][150] - Gross margin remained flat at 71% for Q2 2025 but increased by three percentage points to 72% for H1 2025, primarily due to higher Gainshare contribution[151][152] Research and Development Expenses This section details the company's investments in research and development activities and their impact on expenses Research and Development Expenses (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Research and development | $14,913 | $12,649 | $2,264 | 18% | $29,541 | $25,633 | $3,908 | 15% | | As a percentage of total revenues | 29% | 30% | | | 30% | 31% | | | - R&D expenses increased by $2.3 million (18%) for Q2 2025 and $3.9 million (15%) for H1 2025, driven by higher personnel-related costs (headcount, salaries, bonuses, stock-based compensation), subcontractor fees (Cimetrix software), and facilities/IT costs[155][156] Selling, General, and Administrative Expenses This section analyzes the trends and drivers of the company's selling, general, and administrative costs Selling, General, and Administrative Expenses (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Selling, general, and administrative | $19,744 | $16,259 | $3,485 | 21% | $43,116 | $32,757 | $10,359 | 32% | | As a percentage of total revenues | 38% | 39% | | | 43% | 39% | | | - SG&A expenses increased by $3.5 million (21%) for Q2 2025 and $10.4 million (32%) for H1 2025[159][160] - Key drivers for the increase include higher personnel-related costs, subcontractor fees, facilities/IT costs, and $4.5 million in non-recurring legal, finance, and integration costs related to the SecureWise acquisition for H1 2025[159][160] Amortization of Acquired Intangible Assets This section discusses the amortization expense related to intangible assets acquired through business combinations Amortization of Acquired Intangible Assets (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Amortization of acquired intangible assets | $1,068 | $259 | $809 | 312% | $1,446 | $518 | $928 | 179% | - Amortization expense for acquired intangible assets significantly increased by 312% for Q2 2025 and 179% for H1 2025, primarily due to intangibles acquired from prior business combinations, including SecureWise[162] Interest Expense This section details the interest costs incurred on the company's debt obligations Interest Expense (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Interest expense | $(1,242) | — | $(1,242) | (100)% | $(1,553) | — | $(1,553) | (100)% | - The company incurred $1.2 million in interest expense for Q2 2025 and $1.6 million for H1 2025, compared to none in the prior periods, due to long-term debt taken to finance the SecureWise acquisition[163] Interest Income and Other, Net This section reports on interest earned from investments and other non-operating income or expenses Interest Income and Other, Net (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Interest income and other, net | $196 | $1,479 | $(1,283) | (87)% | $1,066 | $3,171 | $(2,105) | (66)% | - Interest income and other, net decreased by $1.3 million for Q2 2025 and $2.1 million for H1 2025, primarily due to lower interest income from cash/investments and unfavorable foreign currency exchange rate fluctuations, partially offset by a recovery from previously written-off property and equipment[164][165] Income Tax Expense This section analyzes the company's income tax provisions, benefits, and effective tax rates Income Tax Benefit (Expense) (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Income tax benefit (expense) | $1,075 | $(38) | $(1,113) | (2,929)% | $1,039 | $(163) | $(1,202) | (737)% | - The company recorded an income tax benefit for both Q2 and H1 2025, a significant change from expenses in the prior year, mainly due to changes in foreign, federal, and state taxes and the recognition of worldwide pre-tax income (loss)[166] - The recently enacted OBBBA in the U.S. (July 4, 2025) is being assessed for its potential impact on future effective tax rates, liabilities, and cash taxes, with no impact included in H1 2025 results[168] Liquidity and Capital Resources Overview This section provides an overview of the company's cash position, working capital, and ability to meet financial obligations - Working capital decreased to $77.8 million at June 30, 2025, from $145.4 million at December 31, 2024[169] - Total cash, cash equivalents, and short-term investments decreased to $40.4 million at June 30, 2025, from $114.9 million at December 31, 2024[169] - The company believes existing cash resources and anticipated funds from operations will satisfy cash requirements for at least the next twelve months and the foreseeable future[171] Term Loan and Revolving Credit Facility This section details the company's credit facilities, including terms, covenants, and utilization - On March 7, 2025, the company entered into a Credit Agreement for a $45.0 million revolving credit facility and a $25.0 million term loan facility[172][173] - The facilities were used to partially finance the acquisition of SecureWise[179] - The Credit Agreement includes customary covenants, such as maintaining a consolidated total net leverage ratio not greater than 3.00 to 1.00 and a consolidated fixed charge coverage ratio not less than 1.25 to 1.00, with which the company was in compliance as of June 30, 2025[176] Repurchase of Company's Common Stock This section reports on any stock repurchase programs and their execution during the period - A new $40.0 million stock repurchase program was adopted on April 15, 2024, but no shares have been repurchased under this program as of June 30, 2025[180] Cash Flow Data This section provides a summary and analysis of cash flows from operating, investing, and financing activities Summary of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | | Operating activities | $3,425 | $(1,178) | $4,603 | | Investing activities | $(124,246) | $4,193 | $(128,439) | | Financing activities | $66,645 | $(9,153) | $75,798 | | Effect of exchange rate changes | $997 | $(853) | $1,850 | | Net change in cash and cash equivalents | $(53,179) | $(6,991) | $(46,188) | - Net cash provided by operating activities increased by $4.6 million, primarily due to higher collections from customers[183] - Net cash used in investing activities increased by $128.4 million, mainly due to the $129.7 million payment for the SecureWise acquisition[184][185] - Net cash provided by financing activities increased by $75.8 million, driven by $69.6 million in proceeds from long-term debt for the SecureWise acquisition[187][188] Related Party Transactions This section refers to disclosures regarding transactions with related parties - Information regarding related party transactions with Advantest is detailed in Note 12[190] Off-Balance Sheet Agreements This section confirms the absence of any material off-balance sheet arrangements - As of June 30, 2025, the company does not have any off-balance sheet arrangements, investments in special purpose entities, or undisclosed borrowings or debt[191] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, specifically focusing on interest rate risk and foreign currency exchange risk, and discusses potential impacts on financial performance Interest Rate Risk This section assesses the company's exposure to fluctuations in interest rates on its debt and investment portfolio - The company's exposure to interest rate risk relates to its investment portfolio and $68.1 million in variable-rate long-term debt[193][196] - A hypothetical 100 basis point increase in market interest rates would increase annual interest expense on variable-rate debt by an average of $0.4 million[196] Foreign Currency and Exchange Risk This section discusses the company's exposure to currency fluctuations from international operations and transactions - The company is exposed to foreign currency risks due to cash balances, receivables, and payables denominated in local currencies (Euro, Yen, Chinese Yuan, New Taiwan Dollar, Canadian Dollar) for international operations[197] - The company does not currently use foreign currency exchange contracts for trading or speculative purposes[197] Item 4. Controls and Procedures This section details management's evaluation of the effectiveness of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section reports on management's assessment of the effectiveness of the company's disclosure controls and procedures - Management concluded that disclosure controls and procedures were effective as of June 30, 2025[198] - The assessment of SecureWise's internal control over financial reporting was omitted due to SEC guidance, as the acquisition was completed on March 7, 2025[199] Changes in Internal Control over Financial Reporting This section discloses any material changes in the company's internal control over financial reporting - There were no material changes in the company's internal control over financial reporting during the six months ended June 30, 2025, other than the exclusion of SecureWise's internal controls from the assessment[200] PART II OTHER INFORMATION This section includes additional information not covered in the financial statements, such as legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section refers to the detailed information on legal proceedings provided in the notes to the condensed consolidated financial statements - Information regarding legal proceedings is provided in Note 11, Commitments and Contingencies[201] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[202] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the absence of stock repurchases during the second quarter of 2025 - There were no stock repurchases during the second quarter of 2025[203] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities[204] Item 4. Mine Safety Disclosures This section states that there are no mine safety disclosures to report - No mine safety disclosures[205] Item 5. Other Information This section provides other information, specifically noting the absence of insider trading arrangement adoptions or terminations - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[206] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including agreements, certifications, and financial statements in XBRL format - The report includes exhibits such as the Equity Purchase Agreement for SecureWise, amended organizational documents, stock incentive plans, and certifications by executive officers[208] SIGNATURES This section contains the required signatures of the company's authorized officers, affirming the submission of the report - The report is signed by John K. Kibarian, President and Chief Executive Officer, and Adnan Raza, Executive Vice President, Finance and Chief Financial Officer, on August 7, 2025[212]