10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period ended September 30, 2021

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _______________ to ______________

Commission File Number 000-31311

PDF SOLUTIONS, INC.

(Exact name of Registrant as Specified in its Charter)

Delaware	25-1701361
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
2858 De La Cruz Blvd.
Santa Clara, California	95050
(Address of Principal Executive Offices)	(Zip Code)

(408) 280-7900

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00015 par value	PDFS	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,  a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated  filer ☑	Smaller reporting company ☑
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

There were 37,345,264 shares of the Registrant’s Common Stock outstanding as of November 3, 2021.

TABLE OF CONTENTS

	Page
PART I   FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Comprehensive Loss	4
Condensed Consolidated Statements of Stockholders’ Equity	5
Condensed Consolidated Statements of Cash Flows	7
Notes to Condensed Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	40
Item 4. Controls and Procedures	41
PART II  OTHER INFORMATION
Item 1. Legal Proceedings	41
Item 1A. Risk Factors	41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3. Defaults Upon Senior Securities	41
Item 4. Mine Safety Disclosures	42
Item 5. Other Information	42
Item 6. Exhibits	43
INDEX TO EXHIBITS	43
SIGNATURES	44

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except par value)

	September 30,		December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	71,238	$	30,315
Short-term investments		69,992		114,981
Accounts receivable, net of allowance for doubtful accounts of $890 and $963 in 2021 and 2020, respectively		33,681		34,140
Prepaid expenses and other current assets		10,298		13,944
Total current assets		185,209		193,380
Property and equipment, net		37,821		39,242
Operating lease right-of-use assets, net		5,614		6,672
Goodwill		15,305		15,774
Intangible assets, net		22,106		24,573
Deferred tax assets, net		174		249
Other non-current assets		8,995		7,690
Total assets	$	275,224	$	287,580
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,210	$	4,399
Accrued compensation and related benefits		8,125		8,339
Accrued and other current liabilities		5,854		6,309
Operating lease liabilities – current portion		1,740		1,926
Deferred revenues – current portion		22,207		19,895
Billings in excess of recognized revenues		3		1,337
Total current liabilities		41,139		42,205
Long-term income taxes payable		2,508		2,956
Non-current operating lease liabilities		5,501		6,516
Other non-current liabilities		2,621		1,397
Total liabilities		51,769		53,074
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.00015 par value, 5,000 shares authorized, no shares issued and outstanding		—		—
Common stock, $0.00015 par value, 70,000 shares authorized; shares issued 47,248 and 46,400, respectively; shares outstanding 37,274 and 36,850, respectively		6		6
Additional paid-in-capital		418,933		407,173
Treasury stock at cost, 9,974 and 9,550 shares, respectively		(103,995)		(96,215)
Accumulated deficit		(90,721)		(76,233)
Accumulated other comprehensive loss		(768)		(225)
Total stockholders’ equity		223,455		234,506
Total liabilities and stockholders’ equity	$	275,224	$	287,580

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

3

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
Analytics	$	27,194	$	14,346	$	66,165	$	42,766
Integrated Yield Ramp		2,361		8,766		15,009		22,912
Total revenues		29,555		23,112		81,174		65,678
Costs and Expenses:
Costs of revenues		11,070		9,493		32,518		26,926
Research and development		10,657		8,328		32,562		24,672
Selling, general and administrative		9,609		8,420		28,482		24,052
Amortization of other acquired intangible assets		314		174		942		521
Interest and other expense (income), net		(194)		361		(391)		530
Loss before income taxes		(1,901)		(3,664)		(12,939)		(11,023)
Income tax expense (benefit)		506		(930)		1,549		(4,109)
Net loss	$	(2,407)	$	(2,734)	$	(14,488)	$	(6,914)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax		(226)		540		(540)		581
Change in unrealized losses related to available-for-sale debt securities, net of tax		1		(3)		(3)		(3)
Total other comprehensive income (loss)		(225)		537		(543)		578
Comprehensive loss	$	(2,632)	$	(2,197)	$	(15,031)	$	(6,336)
Net loss per share, basic and diluted	$	(0.06)	$	(0.08)	$	(0.39)	$	(0.21)
Weighted average common shares used to calculate net loss per share, basic and diluted		37,221		35,479		37,067		33,696

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

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PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)

	Nine Months Ended September 30, 2021
											Accumulated
				Additional							Other		Total
	Common Stock			Paid-In		Treasury Stock			Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Shares	Amount		Deficit		Loss		Equity
Balances, December 31, 2020	36,850	$	6	$	407,173	9,550	$	(96,215)	$	(76,233)	$	(225)	$	234,506
Issuance of common stock in connection with employee stock purchase plan	100		—		921	—		—		—		—		921
Issuance of common stock in connection with exercise of options	81		—		568	—		—		—		—		568
Vesting of restricted stock units	149		—		—	—		—		—		—		—
Purchases of treasury stock in connection with tax withholdings on restricted stock grants	—		—		—	73		(1,463)		—		—		(1,463)
Repurchase of common stock	(251)		—		—	251		(4,523)		—		—		(4,523)
Stock-based compensation expense	—		—		3,369	—		—		—				3,369
Comprehensive loss	—		—		—	—		—		(7,597)		(528)		(8,125)
Balances, March 31, 2021	36,929		6		412,031	9,874		(102,201)		(83,830)		(753)		225,253
Issuance of common stock in connection with exercise of options	39		—		290	—		—		—		—		290
Vesting of restricted stock units	118		—		—	—		—		—		—		—
Purchases of treasury stock in connection with tax withholdings on restricted stock grants	—		—		—	51		(887)		—		—		(887)
Stock-based compensation expense	—		—		2,742	—		—		—		—		2,742
Comprehensive income (loss)	—		—		—	—		—		(4,484)		210		(4,274)
Balances, June 30, 2021	37,086		6		415,063	9,925		(103,088)		(88,314)		(543)		223,124
Issuance of common stock in connection with employee stock purchase plan	9		—		114	—		—		—		—		114
Issuance of common stock in connection with exercise of options	40		—		393	—		—		—		—		393
Vesting of restricted stock units	139		—		—	—		—		—		—		—
Purchases of treasury stock in connection with tax withholdings on restricted stock grants	—		—		—	49		(907)		—		—		(907)
Stock-based compensation expense	—		—		3,363	—		—		—		—		3,363
Comprehensive loss	—		—		—	—		—		(2,407)		(225)		(2,632)
Balances, September 30, 2021	37,274	$	6	$	418,933	9,974	$	(103,995)	$	(90,721)	$	(768)	$	223,455

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

5

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)

	Nine Months Ended September 30, 2020
											Accumulated
				Additional							Other		Total
	Common Stock			Paid-In		Treasury Stock			Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Shares	Amount		Deficit		Loss		Equity
Balances, December 31, 2019	32,503	$	5	$	325,197	9,294	$	(91,695)	$	(35,870)	$	(1,480)	$	196,157
Issuance of common stock in connection with employee stock purchase plan	89		—		810	—		—		—		—		810
Issuance of common stock in connection with exercise of options	21		—		161	—		—		—		—		161
Vesting of restricted stock units	182		—		—	—		—		—		—		—
Purchases of treasury stock in connection with tax withholdings on restricted stock grants	—		—		—	93		(1,478)		—		—		(1,478)
Stock-based compensation expense	—		—		3,513	—		—		—		—		3,513
Comprehensive loss	—		—		—	—		—		(528)		(166)		(694)
Balances, March 31, 2020	32,795		5		329,681	9,387		(93,173)		(36,398)		(1,646)		198,469
Issuance of common stock in connection with exercise of options	56		—		463	—		—		—		—		463
Vesting of restricted stock units	131		—		—	—		—		—		—		—
Purchases of treasury stock in connection with tax withholdings on restricted stock grants	—		—		—	52		(795)		—		—		(795)
Stock-based compensation expense	—		—		3,013	—		—		—		—		3,013
Comprehensive income (loss)	—		—		—	—		—		(3,652)		207		(3,445)
Balances, June 30, 2020	32,982		5		333,157	9,439		(93,968)		(40,050)		(1,439)		197,705
Issuance of common stock, net of issuance of $0.1 million	3,307		—		65,077	—		—		—		—		65,077
Issuance of common stock in connection with employee stock purchase plan	93		—		860	—		—		—		—		860
Issuance of common stock in connection with exercise of options	101		—		1,210	—		—		—		—		1,210
Vesting of restricted stock units	143		—		—	—		—		—		—		—
Purchases of treasury stock in connection with tax withholdings on restricted stock grants	—		—		—	52		(1,024)		—		—		(1,024)
Stock-based compensation expense	—		—		3,146	—		—		—		—		3,146
Comprehensive income (loss)	—		—		—	—		—		(2,734)		537		(2,197)
Balances, September 30, 2020	36,626	$	5	$	403,450	9,491	$	(94,992)	$	(42,784)	$	(902)	$	264,777

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

6

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(14,488)	$	(6,914)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		4,806		5,030
Stock-based compensation expense		9,474		9,476
Amortization of acquired intangible assets		2,467		952
Amortization of costs capitalized to obtain revenue contracts		499		367
Deferred taxes		87		(5,309)
Others		125		268
Changes in operating assets and liabilities:
Accounts receivable		440		313
Prepaid expenses and other current assets		1,848		235
Operating lease right-of-use assets		1,043		1,048
Other non-current assets		(1,211)		1,442
Accounts payable		(1,969)		(3,900)
Accrued compensation and related benefits		(142)		227
Accrued and other liabilities		(167)		1,568
Deferred revenues		3,542		6,928
Billings in excess of recognized revenues		(1,334)		313
Operating lease liabilities		(1,193)		(1,168)
Net cash provided by operating activities		3,827		10,876
Cash flows from investing activities:
Proceeds from maturities of short-term investments		136,000		—
Purchases of short-term investments		(90,985)		(49,983)
Purchases of property and equipment		(2,713)		(4,786)
Prepayment for the purchase of property and equipment		—		(579)
Net cash provided by (used in) investing activities		42,302		(55,348)
Cash flows from financing activities:
Proceeds from exercise of stock options		1,251		1,834
Proceeds from employee stock purchase plan		1,035		1,670
Payments for taxes related to net share settlement of equity awards		(3,257)		(3,297)
Repurchases of common stock		(4,523)		—
Proceeds from issuance of common stock, net of issuance costs paid		—		64,995
Net cash provided by (used in) financing activities		(5,494)		65,202
Effect of exchange rate changes on cash and cash equivalents		(193)		51
Net change in cash, cash equivalents, and restricted cash		40,442		20,781
Cash, cash equivalents, and restricted cash at beginning of period		33,815		97,605
Cash, cash equivalents, and restricted cash at end of period	$	74,257	$	118,386
Reconciliation of cash, cash equivalents, and restricted cash to the balance sheets:
Cash and cash equivalents	$	71,238	$	118,386
Restricted cash		3,019		—
Total cash, cash equivalents, and restricted cash	$	74,257	$	118,386

Continued on next page.

7

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED

(unaudited)

(in thousands)

	Nine Months Ended September 30,
	2021		2020
Supplemental disclosure of cash flow information:
Cash paid during the period for taxes	$	1,543	$	2,188
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,538	$	1,598
Supplemental disclosure of noncash information:
Stock-based compensation capitalized as software development costs	$	—	$	190
Property and equipment received and accrued in accounts payable and accrued and other liabilities	$	247	$	161
Advances for purchase of fixed assets transferred from prepaid assets to property and equipment	$	963	$	—
Release of restricted cash reducing goodwill due to the acquisition purchase price adjustment	$	469	$	—
Operating lease liabilities arising from obtaining right-of-use assets	$	—	$	151
Issuance costs for common stock included in accounts payable and accrued other liabilities	$	—	$	82

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

8

PDF SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The interim unaudited condensed consolidated financial statements included herein have been prepared by PDF Solutions, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), including the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The interim unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary (consisting only of normal recurring adjustments) to present a fair statement of results for the interim periods presented. The operating results for any interim period are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all intercompany balances and transactions.

The condensed consolidated balance sheet at December 31, 2020, has been derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include revenue recognition, assumptions made in analysis of allowance for doubtful accounts, impairment of goodwill and long-lived assets, realization of deferred tax assets (“DTAs”), and accounting for lease obligations, stock-based compensation expense, and income taxes. Actual results could differ from those estimates.

The global COVID-19 pandemic has impacted the operations and purchasing decisions of companies worldwide. As of the date of issuance of the condensed consolidated financial statements, the Company is not aware of any specific event or circumstance relating to COVID-19 that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial statements.

Recent Accounting Standards

Accounting Standards Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, related to simplifying the accounting for income taxes. The guidance eliminates certain exceptions from Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also clarifies and simplifies other aspects of the accounting for income taxes. The guidance became effective for the Company beginning in the first quarter of 2021 on a

9

prospective basis. The Company adopted this standard on January 1, 2021, and it did not have a material impact on the Company’s condensed consolidated financial statements or the related disclosures.

In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU clarifies the interaction between accounting standards related to equity securities (ASC 321), equity method investments (ASC 323), and certain derivatives (ASC 815). The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. The Company adopted this standard on January 1, 2021, and it did not have a material impact on the Company’s condensed consolidated financial statements or the related disclosures.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model, which will result in earlier recognition of credit losses. Subsequent to the issuance of ASU No. 2016-13, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instrument, ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326) Targeted Transition Relief, ASU No. 2016-13, ASU No. 2019-10 Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and ASU No. 2019-11 Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The subsequent ASUs do not change the core principle of the guidance in ASU No. 2016-13. Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU No. 2016-13.

Additionally, ASU No. 2019-10 defers the effective date for the adoption of the new standard on credit losses for public filers that are considered small reporting companies (“SRC”) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which will be fiscal 2023 for the Company if it continues to be classified as an SRC. In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The subsequent amendments will have the same effective date and transition requirements as ASU No. 2016-13. Early adoption is permitted. Topic 326 requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. While the Company is currently evaluating the impact of Topic 326, the Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements or the related disclosure.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-20): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. Additionally, the ASU will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. The ASU will be effective for annual reporting periods beginning after December 15, 2023 for SRCs and interim periods within those annual periods. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its condensed consolidated financial statements or the related disclosures.

Management has reviewed other recently issued accounting pronouncements issued or proposed by the FASB, and does not believe any of these accounting pronouncements has had or will have a material impact on the condensed consolidated financial statements.

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company derives revenue from two sources: Analytics revenue and Integrated Yield Ramp revenue.

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The Company recognizes revenue in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”). ASC 606 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. Revenue is recognized when control of products or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those promised products or services.

The Company determines revenue recognition through the following five steps:

● Identification of the contract, or contracts, with a customer

● Identification of the performance obligations in the contract

● Determination of the transaction price

● Allocation of the transaction price to the performance obligations in the contract

● Recognition of revenue when, or as, performance obligations are satisfied

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.

Contracts with multiple performance obligations

The Company enters into contracts that can include various combinations of licenses, products and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative basis using the standalone selling price.

Analytics Revenue

Analytics revenue is derived from the following primary offerings: licenses and services for standalone software (which is primarily Exensio^® and Cimetrix^® products), SaaS (which is primarily Exensio products), and DFI™ systems and CV^® systems that do not include performance incentives based on customers’ yield achievement.

Revenue from standalone software is recognized depending on whether the license is perpetual or time-based. Perpetual (one-time charge) license software is recognized at the time of the inception of the arrangement when control transfers to the customers, if the software license is considered as a separate performance obligation from the services offered by the Company. Revenue from post-contract support is recognized over the contract term on a straight-line basis, because we are providing (i) support and (ii) unspecified software updates on a when-and-if available basis over the contract term. Revenue from time-based-licensed software is allocated to each performance obligation and is recognized either at a point in time or over time as follows. The license component is recognized at the time when control transfers to customers, with the post-contract support component recognized ratably over the committed term of the contract. For contracts with any combination of licenses, support, and other services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using the standalone selling price (“SSP”) attributed to each performance obligation.

Revenue from SaaS arrangements, which allow for the use of a cloud-based software product or service over a contractually determined period of time without the customer having to take possession of software, is accounted for as a subscription and is recognized as revenue ratably, on a straight-line basis, over the subscription period beginning on the date the service is first made available to customers. For contracts with any combination of SaaS and related services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation.

Revenue from DFI systems and CV systems that do not include performance incentives based on customers’ yield achievement is recognized primarily as services are performed. Where there are distinct performance obligations, the Company allocates revenue to all deliverables based on their SSPs. For those contracts with multiple performance obligations,

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the Company allocates the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation. Where there are not discrete performance obligations, historically, revenue is primarily recognized as services are performed using a percentage of completion method based on costs or labor-hours inputs, whichever is the most appropriate measure of the progress towards completion of the contract. The estimation of percentage of completion method is complex and subject to many variables that require significant judgement. Please refer to “Significant Judgments” section of this Note for further discussion.

Integrated Yield Ramp Revenue

Integrated Yield Ramp revenue is derived from the Company’s fixed-fee engagements that include performance incentives based on customers’ yield achievement (which consists primarily of Gainshare royalties) typically based on customer’s wafer shipments, pertaining to these fixed-price contracts, which royalties are variable.

Revenue under these project–based contracts, which are delivered over a specific period of time, typically for a fixed fee component paid on a set schedule, is recognized as services are performed using a percentage of completion method based on costs or labor-inputs, whichever is the most appropriate measure of the progress towards completion of the contract. Where there are distinct performance obligations, the Company allocates revenue to all deliverables based on their SSPs and allocates the transaction price of the contract to each performance obligation on a relative basis using SSP. Similar to the services provided in connection with DFI systems and CV systems that are contributing to Analytics revenue, due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex and subject to many variables that require significant judgement. Please refer to “Significant Judgments” section of this Note for further discussion.

The Gainshare royalty contained in IYR contracts is a variable fee related to continued usage of the Company’s intellectual property after the fixed-fee service period ends, based on a customer’s yield achievement. Revenue derived from Gainshare is contingent upon the Company’s customers reaching certain defined production yield levels. Gainshare royalty periods are generally subsequent to the delivery of all contractual services and performance obligations. The Company records Gainshare as a usage-based royalty derived from customers’ usage of intellectual property and records it in the same period in which the usage occurs.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into the timing of the transfer of goods and services and the geographical regions. The Company determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The Company’s performance obligations are satisfied either over time or at a point-in-time. The following table represents a disaggregation of revenue by timing of revenue:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Over time	72		55	%	60		56	%
Point-in-time	28		45	%	40		44	%
Total	100	%	100	%	100	%	100	%

International revenues accounted for approximately 53% and 57% of our total revenues during the three and nine months ended September 30, 2021, respectively, compared to 67% and 60% of our total revenues during the three and nine months ended September 30, 2020, respectively. See Note 11, Customer and Geographic Information.

Significant Judgments

Judgments and estimates are required under ASC 606. Due to the complexity of certain contracts, the actual revenue recognition treatment required under ASC 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.

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For revenue under project-based contracts for fixed-price implementation services, revenue is recognized as services are performed using a percentage-of-completion method based on costs or labor-hours input method, whichever is the most appropriate measure of the progress towards completion of the contract. Due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex, subject to many variables and requires significant judgment. Key factors reviewed by the Company to estimate costs to complete each contract are future labor and product costs and expected productivity efficiencies. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in revenue on a cumulative catch-up basis in the period in which the circumstances that gave rise to the revision become known.

The Company’s contracts with customers often include promises to transfer products, licenses software and provide services, including professional services, technical support services, and rights to unspecified updates to a customer. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. The Company rarely licenses software on a standalone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where SSP is not directly observable because the Company does not license the software or sell the service separately, the Company determines the SSP using information that may include market conditions and other observable inputs.

The Company is required to record Gainshare royalty revenue in the same period in which the usage occurs. Because the Company generally does not receive the acknowledgment reports from its customers during a given quarter within the time frame necessary to adequately review the reports and include the actual amounts in quarterly results for such quarter, the Company accrues the related revenue based on estimates of customers underlying sales achievement. The Company’s estimation process can be based on historical data, trends, seasonality, changes in the contract rate, knowledge of the changes in the industry and changes in the customer’s manufacturing environment learned through discussions with customers and sales personnel. As a result of accruing revenue for the quarter based on such estimates, adjustments will be required in the following quarter to true-up revenue to the actual amounts reported.

Contract Balances

The Company performs its obligations under a contract with a customer by licensing software or providing services in exchange for consideration from the customer. The timing of the Company’s performance often differs from the timing of the customer’s payment, which results in the recognition of a receivable, a contract asset or a contract liability.

The Company classifies the right to consideration in exchange for software or services transferred to a customer as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional, as compared to a contract asset, which is a right to consideration that is conditional upon factors other than the passage of time. The majority of the Company’s contract assets represent unbilled amounts related to fixed-price service contracts when the revenue recognized exceeds the amount billed to the customer. The contract assets are generally classified as current and are recorded on a net basis with deferred revenue (i.e. contract liabilities) at the contract level. The total contract assets included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets was immaterial as of September 30, 2021 and $3.7 million as of December 31, 2020. The Company did not record any asset impairment charges related to contract assets for the periods presented.

Deferred revenues consist substantially of amounts invoiced in advance of revenue recognition and are recognized as the revenue recognition criteria are met. Deferred revenues that will be recognized during the succeeding twelve-month period are recorded as current deferred revenues and the remaining portion is recorded in the other non-current liabilities in the Condensed Consolidated Balance Sheets. At September 30, 2021 and December 31, 2020, the non-current portion of deferred revenues included in non-current liabilities was $2.5 million and $1.2 million, respectively. Revenue recognized that was included in the deferred revenues and billings in excess of recognized revenues balances at the beginning of each reporting period was $7.0 million and $4.7 million during the three months ended September 30, 2021 and 2020, respectively, and $13.8 million and $9.5 million during the nine months ended September 30, 2021 and 2020, respectively.

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At September 30, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that were unsatisfied or partially unsatisfied was approximately $180.9 million. Given the applicable contract terms with customers, the majority of this amount is expected to be recognized as revenue over the next two years, with the remainder in the following three years. This amount does not include insignificant contracts to which the customer is not committed, nor significant contracts for which we recognize revenue equal to the amount we have the right to invoice for services performed, or future sales-based or usage-based royalty payments in exchange for a license of intellectual property. This amount is subject to change due to future revaluations of variable consideration, terminations, other contract modifications, or currency adjustments. The estimated timing of the recognition of remaining unsatisfied performance obligations is subject to change and is affected by changes to the scope, change in timing of delivery of products and services, or contract modifications.

The adjustment to revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods was a decrease of $0.2 million and $1.2 million during the three months ended September 30, 2021 and 2020, respectively, and an increase of $34,000 and $0.4 million during the nine months ended September 30, 2021 and 2020, respectively. These amounts primarily represent changes in estimated percentage-of-completion based contracts and changes in actual versus estimated Gainshare royalty.

Costs to obtain or fulfill a contract

The Company capitalizes the incremental costs to obtain or fulfill a contract with a customer, including direct sales commissions and related fees, when it expects to recover those costs. Amortization expense related to these capitalized costs is recognized over the period associated with the revenue from which the cost was incurred. Total capitalized direct sales commission costs included in prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2021, and December 31, 2020 were $0.8 million and $0.8 million, respectively. Total capitalized direct sales commission costs included in other non-current assets in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2021, and December 31, 2020 were $1.8 million and $0.9 million, respectively. Amortization of these assets were $0.2 million and $0.1 million during the three months ended September 30, 2021 and 2020, respectively, and $0.5 million and $0.4 million during the nine months ended September 30, 2021 and 2020, respectively. There was no impairment loss in relation to the costs capitalized for the periods presented.

The Company does not adjust the transaction price for the effects of a significant financing component when the period between the transfers of the promised good or service to the customer and payment for that good or service by the customer is expected to be one year or less. The Company assessed each of its revenue generating arrangements in order to determine whether a significant financing component exists, and determined its contracts did not include a significant financing component during the three and nine months ended September 30, 2021 and 2020.

3. STRATEGIC PARTNERSHIP AGREEMENT WITH ADVANTEST AND RELATED PARTY TRANSACTIONS

On July 29, 2020, the Company entered into a long-term strategic partnership with Advantest Corporation through its wholly-owned subsidiary, Advantest America, Inc. (collectively referred to herein as “Advantest”) that included the following agreements.

● A Securities Purchase Agreement for the purchase by Advantest of an aggregate of 3,306,924 shares of the Company’s common stock for aggregate gross proceeds of $65.2 million and a related Stockholder Agreement.

● An Amendment #1 to that certain Software License and Related Services Agreement, dated as of March 25, 2020, for an exclusive commercial arrangement in which the Company and Advantest will collaborate on, and the Company will initially host, develop and maintain, an Advantest-specific cloud layer on the Exensio platform.

● An Amended and Restated Master Development Agreement with Advantest, pursuant to which the Company and Advantest agreed to collaborate on extensions to or combinations of both of their existing technology and new technology to address mutual customers’ needs through one or more development phases subject to certain conditions as set forth therein. Costs and expenses incurred related to this agreement have not been significant for the three and nine months ended September 30, 2021.

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● A Master Commercial Terms and Support Services Agreement for the commercialization and support of integrated products of the Company and Advantest that are the outcome of the above development agreement. No material costs and expenses were incurred related to the Commercial Agreement with Advantest during the three and nine months ended September 30, 2021.

Analytics revenue recognized from Advantest were $2.7 million and $7.9 million during the three and nine months ended September 30, 2021, respectively, and $1.0 million during each of the three and nine months ended September 30, 2020. There was no outstanding accounts receivable from Advantest as of September 30, 2021 and December 31, 2020, and deferred revenue amounted to $9.6 million and nil as of September 30, 2021 and December 31, 2020, respectively. There was no occurrence of any termination events under these agreements as of the issuance of these condensed consolidated financial statements.

The Company carries out transactions with Advantest on arm’s length commercial customary terms. For more information about these agreements with Advantest, see Note 3, Strategic Partnership Agreement with Advantest and Related Party Transactions, of Part II, Item 8. “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

4. BUSINESS COMBINATION

On December 1, 2020 (the “Acquisition Date”), the Company acquired all the stock of Cimetrix Incorporated (“Cimetrix”). Total payment made for this acquisition in 2020 amounted to $28.6 million, net of cash acquired, and was funded from the available cash of the Company. In 2020, the Company held back $3.5 million of the purchase price (the “Holdback Amount”) to satisfy adjustments and claims for indemnity arising out of breaches of certain representations, warranties and covenants, and certain other enumerated items in the merger agreement. During the first quarter of 2021, the Company recorded a measurement period adjustment as described below which reduced the Holdback Amount to $3.0 million. This reduction was released from the restricted cash on the Company’s Condensed Consolidated Balance Sheet. The Holdback Amount, as adjusted, is expected to be paid to the participating equity holders on approximately the twelve-month anniversary of the Acquisition Date. The Holdback Amount is recorded under accrued and other current liabilities account in the Condensed Consolidated Balance Sheets.

The Company is required to maintain cash specifically designated to pay for the Holdback Amount, which the Company has classified as restricted cash. Restricted cash amounted to $3.0 million and $3.5 million as of September 30, 2021 and December 31, 2020, respectively, and is included in the “Prepaid expenses and other current assets” account in the Company’s Condensed Consolidated Balance Sheets.

The Company is still finalizing the allocation of the purchase price to the individual assets acquired. Accordingly, the estimates set forth below are preliminary and are subject to change during the measurement period, which is not to exceed one year from the acquisition date. During the measurement period, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. During the first quarter of 2021, the Company recorded a measurement period adjustment to the estimated fair values initially recorded in 2020, which resulted in a reduction in Holdback Amount of $0.5 million with a corresponding change to goodwill. The measurement period adjustment did not have an impact on the Company’s Condensed Consolidated Statements of Comprehensive Loss during the three and nine months ended September 30, 2021.

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As of September 30, 2021, the allocation of the purchase price for this acquisition is as follows (in thousands, except amortization period):

			Amortization
	Amount		Period (Years)
Assets
Fair value of tangible assets (including cash of $5,900)	$	8,403
Fair value of intangible assets:
Developed technology		12,541	8
In-process R&D		3,635	N/A
Customer relationships		1,967	10
Noncompetition agreements		848	3
Tradenames and trademarks		808	10
Goodwill		13,012	N/A
Total assets acquired	$	41,214
Liabilities
Accounts payable and accrued expenses	$	1,437
Deferred revenue		391
Operating lease liabilities		132
Deferred tax liabilities		1,743
Total liabilities assumed	$	3,703
Total purchase price allocation	$	37,511

Pursuant to the merger agreement, the Company will also pay approximately $1.4 million to certain employees, subject to their continued employment with Cimetrix or the Company, at various scheduled payout dates through the second quarter of 2024. This amount will be recognized as compensation expense over the period as services are rendered. As of September 30, 2021, the estimated remaining total cash payout is approximately $0.9 million. The accrued compensation balance included under accrued compensation and related benefits account in the Company’s Condensed Consolidated Balance Sheet was $0.4 million and $0.3 million as of September 30, 2021 and December 31, 2020, respectively.

Transaction expenses related to the acquisition of Cimetrix amounted to $1.6 million in 2020. These costs consist of professional fees and administrative costs and were expensed as incurred in the Company’s Condensed Consolidated Statement of Comprehensive Loss. No transaction costs were incurred during the three months ended September 30, 2021. Transaction costs were immaterial during the nine months ended September 30, 2021.

The financial results of the acquisition of Cimetrix were considered immaterial for purposes of unaudited pro forma financial disclosures.

5. BALANCE SHEET COMPONENTS

Accounts receivable

Accounts receivable include amounts that are unbilled at the end of the period that are expected to be billed and collected within a 12-month period. Unbilled accounts receivable, included in accounts receivable, totaled $8.6 million and $7.2 million as of September 30, 2021, and December 31, 2020, respectively. Unbilled accounts receivable that are not expected to be billed and collected during the succeeding 12-month period is recorded in other non-current assets and totaled $1.6 million and $2.0 million as of September 30, 2021, and December 31, 2020, respectively.

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Property and equipment

Property and equipment, net consist of the following (in thousands):

	September 30,		December 31,
	2021		2020
Computer equipment	$	11,715	$	11,585
Software		5,433		5,451
Furniture, fixtures and equipment		2,505		2,507
Leasehold improvements		6,270		6,255
Laboratory and other equipment		3,650		3,451
Test equipment		24,865		26,010
Construction-in-progress		23,432		20,278
		77,870		75,537
Less: accumulated depreciation and amortization		(40,049)		(36,295)
Total	$	37,821	$	39,242

Test equipment includes systems assets at customer sites that are contributing to DFI™ systems revenues. The construction-in-progress balance related to construction of DFI™ systems assets totaled $21.5 million and $18.9 million as of September 30, 2021, and December 31, 2020, respectively. Depreciation and amortization expense was $1.5 million and $1.7 million during the three months ended September 30, 2021 and 2020, respectively, and $4.8 million and $5.0 million during the nine months ended September 30, 2021 and 2020, respectively.

Goodwill and Intangible Assets, Net

The change in the carrying amount of goodwill during the nine months ended September 30, 2021, was as follows (in thousands):

Balance at beginning of period, January 1, 2021	$	15,774
Measurement period acquisition adjustment (1)		469
Balance at end of period, September 30, 2021	$	15,305

(1) Goodwill adjustment was recorded within the measurement period with a corresponding reduction in the Holdback Amount. See Note 4, Business Combination.

There were no impairments to goodwill during the nine months ended September 30, 2021.

Intangible assets, net, consisted of the following (in thousands):

		September 30, 2021						December 31, 2020
	Amortization	Gross				Net		Gross				Net
	Period	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	(Years)	Amount		Amortization		Amount		Amount		Amortization		Amount
Acquired identifiable intangibles:
Customer relationships	1-10	$	9,407	$	(5,880)	$	3,527	$	9,407	$	(5,398)	$	4,009
Developed technology	4-9		30,000		(16,652)		13,348		30,000		(14,987)		15,013
Tradename and trademarks	2-10		1,598		(785)		813		1,598		(706)		892
Patent	7-10		1,800		(1,630)		170		1,800		(1,600)		200
Noncompetition agreements	3		848		(235)		613		848		(24)		824
In-process R&D	*		3,635		—		3,635		3,635		—		3,635
Total		$	47,288	$	(25,182)	$	22,106	$	47,288	$	(22,715)	$	24,573

* Non-amortizing intangible asset

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The Company expects annual amortization of acquired identifiable intangible assets to be as follows (in thousands):

Year Ending December 31,	Amount
2021 (remaining three months)	$	754
2022		3,013
2023		2,990
2024		2,592
2025		2,427
2026 and thereafter		6,695
Total future amortization expense	$	18,471

Intangible assets are amortized over their useful lives unless these lives are determined to be indefinite. The weighted average amortization period for acquired identifiable intangible assets was 5.7 years as of September 30, 2021. Intangible assets amortization expense included under “Cost of revenues” and “Amortization of other intangible assets” account in the Condensed Consolidated Statements of Comprehensive Loss was $0.8 million and $0.3 million during the three months ended September 30, 2021 and 2020, respectively, and $2.5 million and $1.0 million during the nine months ended September 30, 2021 and 2020, respectively. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. During the three and nine months ended September 30, 2021, there were no indicators of impairment related to the Company’s intangible assets.

6. LEASES

The Company leases administrative and sales offices and certain equipment under non-cancellable operating leases, which contain various renewal options and, in some cases, require payment of common area costs, taxes and utilities. These operating leases expire at various dates through 2028. The Company had no leases that were classified as a financing lease as of September 30, 2021, and December 31, 2020.

Lease expense was comprised of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Operating lease expense	$	448	$	455	$	1,417	$	1,362
Short-term lease and variable lease expense (1)		196		127		602		401
Total lease expense	$	644	$	582	$	2,019	$	1,763

(1) Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease expense for the periods presented primarily included common area maintenance charges.

Supplemental information related to operating leases was as follows:

	September 30,			December 31,
	2021			2020
Weighted average remaining lease term under operating ROU leases (in years)		6.0			6.4
Weighted average discount rate for operating lease liabilities		5.25	%		5.24	%

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Maturities of operating lease liabilities as of September 30, 2021, were as follows (in thousands):

Year Ending December 31,	Amount(1)
2021 (remaining three months)	$	477
2022		1,707
2023		1,389
2024		1,073
2025		1,088
2026 and thereafter		2,703
Total future minimum lease payments	$	8,437
Less: Interest(2)		(1,196)
Present value of future minimum lease payments under operating lease liabilities (3)	$	7,241

(1) As of September 30, 2021, the total operating lease liability includes approximately $1.1 million related to an option to extend a lease term that is reasonably certain to be exercised.

(2) Calculated using incremental borrowing interest rate for each lease.

(3) Includes the current portion of operating lease liabilities of $1.7 million as of September 30, 2021.

7. STOCKHOLDERS’ EQUITY

Issuance of Common Stock

On July 30, 2020, the Company issued 3,306,924 shares of common stock, at a purchase price of $19.7085 per share, for aggregate gross proceeds of $65.2 million pursuant to a Securities Purchase Agreement with Advantest dated July 29, 2020. Issuance costs related to this private placement aggregated $0.1 million.

Stock Repurchase Program

On May 28, 2020, the Company’s 2018 stock repurchase program (the “2018 Program”) that was originally adopted on May 29, 2018, expired. Through May 28, 2020, approximately 786,000 shares had been repurchased at an average price of $12.43 per share, for a total price of $9.8 million under the 2018 Program.

On June 4, 2020, the Company’s Board of Directors adopted a new stock repurchase program (the “2020 Program”) to repurchase up to $25.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, over the next two years. During the nine months ended September 30, 2021, 251,212 shares were repurchased under the 2020 Program at an average price of $18.01 per share for an aggregate total price of $4.5 million.

8. EMPLOYEE BENEFIT PLANS

On September 30, 2021, the Company had the following stock-based compensation plans:

Employee Stock Purchase Plan

In July 2001, the Company’s stockholders initially approved the 2001 Employee Stock Purchase Plan, which was subsequently amended and restated in 2010 (as amended, the “2010 Purchase Plan”) to extend the term of the plan through May 17, 2020. Under the 2010 Purchase Plan, eligible employees could contribute up to 10% of their compensation, as defined in the 2010 Purchase Plan, towards the purchase of shares of PDF common stock at a price of 85% of the lower of the fair market value at the beginning of the offering period or the end of the purchase period. The 2010 Purchase Plan provided for twenty-four-month offering periods with four six-month purchase periods in each offering period. The 2010 Purchase Plan expired on May 17, 2020. Existing offering periods will continue until they expire in accordance with their terms, and

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participation in such offering periods will continue through the applicable expiration date. The final offering period under the 2010 Purchase Plan expires on January 31, 2022. On June 15, 2021, the Company’s stockholders approved the 2021 Employee Stock Purchase Plan, which has a ten-year term (the “2021 Purchase Plan”). The terms of 2021 Purchase Plan are substantially similar to those of the 2010 Purchase Plan. A twenty-four-month offering period under the 2021 Purchase Plan commenced on August 1, 2021.

The Company estimated the fair value of purchase rights granted under the 2010 and the 2021 Purchase Plans during the period using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions, resulting in the following weighted average fair values:

	2021 Purchase Plan			2010 Purchase Plan
	Nine Months Ended September 30,			Nine Months Ended September 30,
	2021			2021			2020
Expected life (in years)		1.25			1.25			1.25
Volatility		48.00	%		34.25	%		34.25	%
Risk-free interest rate		0.11	%		1.43	%		1.43	%
Expected dividend		—			—			—
Weighted average fair value of purchase rights granted during the period	$	6.71		$	4.83		$	4.83

During the three months ended September 30, 2021 and 2020, a total of approximately 9,000 and 93,000 shares were issued under the 2010 Purchase Plan. During the nine months ended September 30, 2021 and 2020, a total of approximately 109,000 and 183,000 shares, respectively, were issued under the 2010 Purchase Plan, at a weighted-average purchase price of $9.53 per share and $9.12 per share, respectively. As of September 30, 2021, unrecognized compensation cost related to the 2021 Purchase Plan was $2.0 million and there was a negligible amount of unrecognized compensation cost related to the 2010 Purchase Plan. These costs are expected to be recognized over a weighted average period of 1.75 years.

Stock Incentive Plans

On November 16, 2011, the Company’s stockholders initially approved the 2011 Stock Incentive Plan, which has been amended and restated and approved by the Company’s stockholders a number of times since then (as amended, the “2011 Plan”). Under the 2011 Plan, the Company may award stock options, stock appreciation rights (“SARs”), stock grants or stock units covering shares of the Company’s common stock to employees, directors, non-employee directors and contractors. The aggregate number of shares reserved for awards under this plan is 11,500,000 shares, plus up to 3,500,000 shares previously issued under the 2001 Stock Plan adopted by the Company in 2001, which expired in 2011 (the “2001 Plan”) that are either (i) forfeited or (ii) repurchased by the Company or are shares subject to awards previously issued under the 2001 Plan that expire or that terminate without having been exercised or settled in full on or after November 16, 2011. In case of awards other than options or SARs, the aggregate number of shares reserved under the 2011 Plan will be decreased at a rate of 1.33 shares issued pursuant to such awards. The exercise price for stock options must generally be at prices no less than the fair market value at the date of grant. Stock options generally expire ten years from the date of grant and become vested and exercisable over a four-year period.

Stock options granted under the 2001 Plan generally expire ten years from the date of grant and become vested and exercisable over a four-year period. Although no new awards may be granted under the 2001 Plan, awards made under the 2001 Plan that are currently outstanding remain subject to the terms of each such plan.

As of September 30, 2021, 12.1 million shares of common stock were reserved to cover stock-based awards under the 2011 Plan, of which 3.4 million shares were available for future grant. The number of shares reserved and available under the 2011 Plan includes 0.5 million shares that were subject to awards previously made under the 2001 Plan and were forfeited, expired or repurchased by the Company after the adoption of the 2011 Plan through September 30, 2021. As of September 30, 2021, there were no outstanding awards that had been granted outside of the 2011 or 2001 Plans (collectively, the “Stock Plans”).

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The Company estimated the fair value of share-based awards granted under the 2011 Stock Plan during the period using the Black-Scholes-Merton option-pricing model. There were no stock options granted during the three and nine months ended September 30, 2021. The fair value of stock options granted during the three and nine months ended September 30, 2020, was estimated as of the grant-date using the following assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Expected life (in years)		—			4.45			—			4.45
Volatility		—	%		43.92	%		—	%		40.90	%
Risk-free interest rate		—	%		0.23	%		—	%		0.60	%
Expected dividend		—			—			—			—
Weighted average fair value per share of options granted during the period	$	—		$	6.92		$	—		$	5.75

Stock-Based Compensation

Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally four years. Stock-based compensation expense before taxes related to the Company’s stock plans and employee stock purchase plan was allocated as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Costs of revenues	$	670	$	790	$	1,860	$	2,582
Research and development		1,299		1,148		4,013		3,613
Selling, general and administrative		1,394		1,192		3,601		3,281
Stock-based compensation expenses (1)	$	3,363	$	3,130	$	9,474	$	9,476

(1) The stock-based compensation expense during the three and nine months ended September 30, 2020, includes immaterial expense or credit adjustments related to cash-settled SARs granted to certain employees. The Company accounted for these awards as liability awards and the amount was included in accrued compensation and related benefits. All remaining outstanding SARs were fully exercised in the third quarter of 2020.

Stock-based compensation expense that was recorded as capitalized software development costs under property and equipment, net, was nil during the three and nine months ended September 30, 2021, and nil and $0.2 million during the three and nine months ended September 30, 2020, respectively.

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Additional information with respect to options under the Stock Plans during the nine months ended September 30, 2021, is as follows:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Options (in	Price		Term	Value (in
	thousands)	per Share		(Years)	thousands)
Outstanding, January 1, 2021	456	$	10.95
Granted	—		—
Exercised	(160)		7.80
Canceled	(3)		13.52
Expired	(4)		6.90
Outstanding, September 30, 2021	289	$	12.72	3.30	$	2,983
Vested and expected to vest, September 30, 2021	286	$	12.69	3.25	$	2,956
Exercisable, September 30, 2021	240	$	12.27	2.43	$	2,590

The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of $23.04 per share as of September 30, 2021. The total intrinsic value of options exercised was $1.9 million during the nine months ended September 30, 2021.

As of September 30, 2021, there was $0.2 million of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of 2.0 years. The total fair value of shares vested was $0.1 million during the nine months ended September 30, 2021.

Non-vested restricted stock unit activity during the nine months ended September 30, 2021, was as follows:

		Weighted
		Average Grant
	Shares	Date Fair Value
	(in thousands)	Per Share
Non-vested, January 1, 2021	1,747	$	16.33
Granted	894	$	18.42
Vested	(579)	$	16.08
Forfeited	(81)	$	16.85
Non-vested, September 30, 2021	1,981	$	17.33

As of September 30, 2021, there was $27.1 million of total unrecognized compensation cost related to non-vested restricted stock units. That cost is expected to be recognized over a weighted average period of 2.7 years. Restricted stock units do not have rights to dividends prior to vesting.

9. INCOME TAXES

Income tax expense increased $5.7 million for the nine months ended September 30, 2021, to a $1.5 million income tax expense as compared to an income tax benefit of $4.1 million for the nine months ended September 30, 2020. The Company’s effective tax rate (expense) benefit was (12%) and 37% for the nine months ended September 30, 2021 and 2020, respectively. The Company’s effective tax rate increased in the nine months ended September 30, 2021, as compared to the same period in 2020, primarily due to a full valuation allowance against U.S. net deferred tax assets in the fourth quarter of 2020 as well as a one-time benefit in the first quarter of 2020 pursuant to the provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) passed on March 27, 2020.

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The Company’s total amount of unrecognized tax benefits, excluding interest and penalties, as of September 30, 2021, was $14.7 million, of which $1.9 million, if recognized, would affect the Company’s effective tax rate. The Company’s total amount of unrecognized tax benefits, excluding interest and penalties, as of December 31, 2020, was $14.3 million, of which $2.2 million, if recognized, would affect the Company’s effective tax rate. As of September 30, 2021, the Company has recorded unrecognized tax benefits of $2.5 million, including interest and penalties of $0.7 million, as long-term taxes payable in its Condensed Consolidated Balance Sheet. The remaining $12.8 million has been recorded net of the Company’s DTAs, which is subject to a full valuation allowance.

The valuation allowance was approximately $41.9 million as of September 30, 2021, and December 31, 2020, which was related to U.S. net federal and state DTAs. The net deferred tax assets balance as of September 30, 2021, and December 31, 2020, was $0.2 million and $0.2 million, respectively.

The Company conducts business globally and, as a result, files numerous consolidated and separate income tax returns in the U.S. federal, various state and foreign jurisdictions. For U.S. federal and California income tax purposes, the statute of limitations currently remains open for the tax years ending 2017 to present and 2016 to present, respectively. In addition, due to NOL carryback claims, the tax years 2013 through 2015 may be subject to federal examination and all of the net operating loss and research and development credit carryforwards that may be utilized in future years may be subject to federal and state examination. The Company is not subject to income tax examinations in any other of its major foreign subsidiaries’ jurisdictions.

On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the ongoing COVID-19 pandemic. The American Rescue Plan includes, among other things, provisions relating to Paycheck Protection Program (PPP) loan expansion, defined pension contributions, excessive employee remuneration, and the repeal of the election to allocate interest expense on a worldwide basis. Under ASC 740 the effects of new legislation are recognized upon enactment. Accordingly, the American Rescue Plan became effective beginning in the quarter ended March 31, 2021. Such provisions did not have a material impact on the Company’s condensed consolidated financial statements.

10. NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by weighted average number of common shares outstanding for the period (excluding outstanding stock options and shares subject to repurchase). Diluted net loss per share is computed using the weighted-average number of common shares outstanding for the period plus the potential effect of dilutive securities which are convertible into common shares (using the treasury stock method), except in cases in which the effect would be anti-dilutive. The following is a reconciliation of the numerators and denominators used in computing basic and diluted net loss per share (in thousands except per share amount):

	Three Months Ended September 30,				Nine Months Ended December 31,
	2021		2020		2021		2020
Numerator:
Net loss	$	(2,407)	$	(2,734)	$	(14,488)	$	(6,914)
Denominator:
Basic weighted-average shares outstanding		37,221		35,479		37,067		33,696
Effect of dilutive options and restricted stock units		—		—		—		—
Diluted weighted-average shares outstanding		37,221		35,479		37,067		33,696
Net loss per share, basic and diluted	$	(0.06)	$	(0.08)	$	(0.39)	$	(0.21)

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For the three and nine months ended September 30, 2021 and 2020, because the Company was in a loss position, basic net loss per share is the same as diluted net loss per share as the inclusion of the potential common shares would have been anti-dilutive.

The following table sets forth potential shares of common stock that were not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Outstanding options	128	310	182	362
Non-vested restricted stock units	915	1,084	997	820
Employee Stock Purchase Plan	30	190	14	146
Total	1,073	1,584	1,193	1,328

11. CUSTOMER AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in deciding how to allocate resources and in assessing performance.

The Company’s chief operating decision maker, the chief executive officer, reviews discrete financial information presented on a consolidated basis for purposes of regularly making operating decisions, allocation of resources, and assessing financial performance. Accordingly, the Company considers itself to be in one operating and reporting segment, specifically the provision of services for differentiated data and analytics solutions to the semiconductor and electronics industries.

The Company had revenues from individual customers in excess of 10% of total revenues as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
Customer	2021		2020		2021		2020
A	*	%	18	%	*	%	23	%
B	*	%	14	%	*	%	*	%
D	25	%	*	%	12	%	*	%
E	*	%	*	%	10	%	*	%

* represents less than 10%

The Company had gross accounts receivable from individual customers in excess of 10% of gross accounts receivable as follows:

	September 30,		December 31,
Customer	2021		2020
A	*	%	16	%
B	13	%	*	%
C	10	%	11	%
D	25	%	*	%

* represents less than 10%

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Revenues from customers by geographic area based on the location of the customers’ work sites are as follows (amounts in thousands):

	Three Months Ended September 30,
	2021				2020
			Percentage				Percentage
	Revenues		of Revenues		Revenues		of Revenues
United States	$	13,983	47	%	$	7,710	33	%
China		4,038	14			6,747	29
Rest of the world		11,534	39			8,655	38
Total revenue	$	29,555	100	%	$	23,112	100	%

	Nine Months Ended September 30,
	2021				2020
			Percentage				Percentage
	Revenues		of Revenues		Revenues		of Revenues
United States	$	34,634	43	%	$	26,242	40	%
China		10,065	12			10,200	16
Japan		8,543	10			3,414	5
Taiwan		5,411	7			8,038	12
Rest of the world		22,521	28			17,784	27
Total revenue	$	81,174	100	%	$	65,678	100	%

Long-lived assets, net by geographic area are as follows (in thousands):

	September 30,		December 31,
	2021		2020
United States	$	41,811	$	43,663
Rest of the world		1,624		2,251
Total long-lived assets, net	$	43,435	$	45,914

12. FAIR VALUE MEASUREMENTS

Fair value is the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The multiple assumptions used to value financial instruments are referred to as inputs, and a hierarchy for inputs used in measuring fair value is established, that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. These inputs are ranked according to a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

Level 1 -	Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 -	Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 -	Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

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The following table represents the Company’s assets measured at fair value on a recurring basis as of September 30, 2021, and December 31, 2020, and the basis for those measurements (in thousands):

	Fair Value Measurements Using
			Quoted
			Prices in
			Active		Significant
			Markets for		Other
			Identical		Observable		Significant
	September 30,		Assets		Inputs		Unobservable
Assets	2021		(Level 1)		(Level 2)		Inputs (Level 3)
Cash equivalents
Money market mutual funds	$	55,039	$	55,039	$	—	$	—
Short-term investments (available-for-sale debt securities)
U.S. Treasury bills		69,992		69,992		—		—
Total	$	125,031	$	125,031	$	—	$	—

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
Assets	2020		(Level 1)		(Level 2)		(Level 3)
Cash equivalents
Money market mutual funds	$	18,012	$	18,012	$	—	$	—
Short-term investments (available-for-sale debt securities)
U.S. Treasury bills		114,981		114,981		—		—
Total	$	132,993	$	132,993	$	—	$	—

As of September 30, 2021, and December 31, 2020, the amortized cost of the Company’s cash equivalents and short-term investments approximated their fair value due to their short-term maturities, and there have been no events or changes in circumstances that would have had a significant effect on the fair value of these securities in the periods presented. There were no material realized or unrealized gains or losses, either individually or in the aggregate.

From time to time, the Company enters into foreign currency forward contracts to reduce the exposure to foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily on third-party accounts payables and intercompany balances. The primary objective of the Company’s hedging program is to reduce volatility of earnings related to foreign currency exchange rate fluctuations. The counterparty to these foreign currency forward contracts is a financial institution that the Company believes is creditworthy, and therefore, the Company believes the credit risk of counterparty nonperformance is not significant. These foreign currency forward contracts are not designated for hedge accounting treatment.

Therefore, the change in fair value of these contracts is recorded into earnings as a component of other expense (income), net, and offsets the change in fair value of the foreign currency denominated assets and liabilities, which is also recorded in other expense (income), net in the Company’s Condensed Consolidated Statements of Comprehensive Loss.There was no realized gain or loss from foreign currency forward contracts during the three and nine months ended September 30, 2021, or the three months ended September 30, 2020. The Company recognized a net realized loss of $0.2 million from foreign currency forward contracts during the nine months ended September 30, 2020.

As applicable, the Company carries these derivatives financial instruments on its Condensed Consolidated Balance Sheets at their fair values. The Company’s foreign currency forward contracts are classified as Level 2 because they are not actively

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traded and the valuation inputs are based on quoted prices and market observable data of similar instruments. As of September 30, 2021, and December 31, 2020, the Company had no outstanding forward contracts.

13. COMMITMENTS AND CONTINGENCIES

Strategic Partnership with Advantest — See Note 4, Business Combination, for the discussion about the Company’s commitments under the strategic partnership with Advantest.

Operating Leases — Refer to Note 6, Leases, for the discussion about the Company’s lease commitments.

Indemnifications — The Company generally provides a warranty to its customers that its software will perform substantially in accordance with documented specifications typically for a period of 90 days following initial delivery of its products. The Company also indemnifies certain customers from third-party claims of intellectual property infringement relating to the use of its products. Historically, costs related to these guarantees have not been significant. The Company is unable to estimate the maximum potential impact of these guarantees on its future results of operations.

Purchase Obligations — The Company has purchase obligations with certain suppliers for the purchase of goods and services entered in the ordinary course of business. As of September 30, 2021, total outstanding purchase obligations were $11.3 million, the majority of which is due within the next 24 months.

Indemnification of Officers and Directors — As permitted by the Delaware general corporation law, the Company has included a provision in its certificate of incorporation to eliminate the personal liability of its officers and directors for monetary damages for breach or alleged breach of their fiduciary duties as officers or directors, other than in cases of fraud or other willful misconduct.

In addition, the Bylaws of the Company provide that the Company is required to indemnify its officers and directors even when indemnification would otherwise be discretionary, and the Company is required to advance expenses to its officers and directors as incurred in connection with proceedings against them for which they may be indemnified. The Company has entered into indemnification agreements with its officers and directors containing provisions that are in some respects broader than the specific indemnification provisions contained in the Delaware general corporation law. The indemnification agreements require the Company to indemnify its officers and directors against liabilities that may arise by reason of their status or service as officers and directors other than for liabilities arising from willful misconduct of a culpable nature, to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors’ and officers’ insurance if available on reasonable terms. The Company has obtained directors’ and officers’ liability insurance in amounts comparable to other companies of the Company’s size and in the Company’s industry. Since a maximum obligation of the Company is not explicitly stated in the Company’s Bylaws or in its indemnification agreements and will depend on the facts and circumstances that arise out of any future claims, the overall maximum amount of the obligations cannot be reasonably estimated.

Legal Proceedings — From time to time, the Company is subject to various claims and legal proceedings that arise in the ordinary course of business. The Company accrues for losses related to litigation when a potential loss is probable and the loss can be reasonably estimated in accordance with FASB requirements. As of September 30, 2021, the Company was not a party to any material legal proceedings where a loss was probable, and thus no amount was accrued.

On May 6, 2020, the Company initiated an arbitration proceeding with the Hong Kong International Arbitration Center against SMIC New Technology Research & Development (Shanghai) Corporation (“SMIC”) due to SMIC’s failure to pay fees due to PDF under a series of contracts. The Company seeks to recover the unpaid fees, a declaration requiring SMIC to pay fees under the contracts in the future, and costs associated with bringing the arbitration proceeding. The arbitration is on-going.

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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,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential”, “target” or “continue,” the negative effect of terms like these or other similar expressions. Any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies, prospects, or the time required of our executive management for, and expenses related to, as well as the success of the our strategic growth opportunities and partnerships,  including our partnership with Advantest Corporation, possible actions taken by us or our subsidiaries, and the continuing impact of the COVID-19 pandemic on our business, which may be provided by us are also forward-looking statements. 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 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 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, 2020, filed with the Securities and Exchange Commission on March 11, 2021. All references to “we”, “us”, “our”, “PDF”, “PDF Solutions” or “the Company” refer to PDF Solutions, Inc.

Cimetrix, CV, DFI, Exensio, PDF Solutions, the PDF Solutions logo are trademarks or registered trademarks of PDF Solutions, Inc. or its subsidiaries.

Overview

We provide comprehensive data solutions designed to empower organizations across the semiconductor ecosystem to improve the yield and quality of their products and operational efficiency for increased profitability. We derive revenues from two sources: Analytics and Integrated Yield Ramp. Our offerings include proprietary software, physical intellectual property (“IP”) for Integrated Circuits (“IC”) designs, electrical measurement hardware tools, and professional services. We primarily monetize our offerings through license fees, contract revenue for professional services, and increasingly recently, time-based fees for software as a service (“SaaS”). In some cases, especially on our historical integrated yield ramp (“IYR”) engagements, we also receive a value-based royalty that we call Gainshare. Our products, services, and solutions have been sold to integrated device manufacturers (“IDMs”), fabless semiconductor companies, foundries, equipment manufacturers, electronics manufacturing suppliers (“EMS”), original device manufacturers (“ODMs”), out-sourced semiconductor assembly and test (“OSATs”), and system houses.

Industry Trends

The COVID-19 pandemic has significantly affected how we and our customers operate our businesses. For example, most U.S. states and countries worldwide imposed in 2020, and may continue to impose from time-to-time for the foreseeable future, restrictions on the physical movement of people to limit the spread of COVID-19, including travel restrictions and stay-at-home orders. As a result, during portions of 2020, many of our offices were temporarily shut down and our local employees were restricted from traveling to customer sites or visiting our other offices. Several other impacted locations were temporarily closed partially or fully in 2020, with minimal staffing only for essential activities including, for example, supporting essential businesses with our U.S. clean room facility. By the third quarter of 2020, our offices in Canada, France, Korea, and Japan had generally reopened with some restrictions returning temporarily at the end of 2020. We are closely monitoring the COVID-19 situation and are currently planning to reopen our corporate headquarters in the United States in the fourth quarter of 2021 and other offices according to local restrictions, in each case, with a focus on our employees’ safety. In addition, our personnel worldwide continue to be subject to various country-to-country travel restrictions, which limits the ability of some employees to travel to other offices or customer sites. We believe the lack of an ability to meet in

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person during most of 2020 and the first half of 2021 made it harder for us to sell complex or new technologies to some customers during these periods. Once we can again begin to meet with these customers in person, we believe we may improve traction with them. To date, we have been able to provide uninterrupted access to our products and services due to our globally distributed workforce, many of whom were working remotely prior to the pandemic, and our pre-existing infrastructure, which supports secure access to our internal systems. The total duration and full extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the ultimate severity and transmission rate of the virus and variants, the extent and effectiveness of containment actions and vaccinations, and the impact of these and other factors on our employees, customers, partners, and suppliers. To date, one effect of the COVID-19 pandemic is a global shortage in semiconductors due primarily to supply chain disruptions. Many companies have announced shortages in production, e.g., the automotive industry of semiconductors used in their products. Although this shortage has not materially affected our business, this trend may affect our future business opportunities, particularly future Gainshare and Cimetrix run-time licenses, if our customers’ production volumes decrease.

Certain other 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 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 continually decreased year to year. 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, analytic 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 business trends may continue to affect our Integrated Yield Ramp revenue specifically. The logic foundry market at the leading-edge nodes, such as 10nm and 7nm, underwent significant change over the past few years. The leading foundry continues to dominate market share as other foundries may have started later than originally forecast in some cases. This trend has and will likely continue to negatively impact our Integrated Yield Ramp business on these nodes. We expect most logic foundries to invest in derivatives of older process nodes, such as 28nm and 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, packaging, and multi-patterned and EUV lithography, as well as new innovations in process control and variability management. We expect China’s investment in semiconductors to continue. In order for these trends to provide opportunities for us to increase our business leveraging electrical characterization, Chinese semiconductors manufacturers will need to increase their production volumes on advanced technology nodes and continue to engage foreign suppliers, subject to compliance with changing U.S. export restrictions. As a result of these market developments, we have chosen to focus our resources and investments in products, services, and solutions for analytics.

There are other business trends that may affect our business opportunities generally. For instance, the demand for consumer electronics, communications devices, and high-performance computing continues to drive technological innovation in the semiconductor industry as the need for products with greater performance, lower power consumption, reduced costs, and smaller size continues to grow with each new product generation. In addition, advances in computing systems and mobile devices continue to fuel demand for higher capacity memory chips. To meet these demands, IC manufacturers and designers are constantly challenged to improve the overall performance of their ICs by designing and manufacturing ICs with more embedded applications to create greater functionality while lowering power and cost per transistor. As this trend continues, companies will continually be challenged to improve process capabilities to optimally produce ICs with minimal random and

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systematic yield loss, which is driven by the lack of compatibility between the design and its respective manufacturing process. We believe that these difficulties will continue to create a need for our products and services that address yield loss across the IC product life cycle.

Early decisions by the Biden U.S. Presidential Administration confirm continuity of a bipartisan consensus in the U.S. government favoring increased confrontation of China in trade practices and economic matters, national security, and human rights. The Biden Administration views technology as a domain of strategic competition in which the U.S. and allies must stay ahead of China. The Administration has reaffirmed the U.S. government consensus identifying semiconductor, artificial intelligence, and 5G technologies, and protection of U.S. supply chains, as priority efforts. It appears that the Administration may now augment ongoing U.S. efforts by enlisting the cooperation of allied countries in both advanced development and protection against P.R.C. use of U.S. and allied advances. The prior U.S. presidential administration expanded and intensified export controls and sanctions, including the addition of many P.R.C. companies to the U.S. Export Administration Regulations (“EAR”) Entity List. These listings restrict supply to designees of items that are subject to the EAR. After an internal evaluation, we determined that a large percentage of our software products are not of U.S. origin and are, thus, not subject to the EAR. Our standard operations include development, distribution processes, software download sites, and professional service centers and processes located in various geographies around the world to better serve our customers. Some customers have nonetheless 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. The continuing tension between the U.S. and P.R.C. governments in trade and security matters or the perception of that tension could lead to disruptions or reductions in international trade, deter or prevent purchasing activity of customers, and negatively impact our China sales and financial results.

Cimetrix Acquisition

On December 1, 2020, we completed the acquisition of Cimetrix Incorporated. The combination of Cimetrix connectivity products with our Exensio platform, which leverages machine learning, is intended to enable IC, assembly, and equipment manufacturer customers to extract more intelligence from their tools, not just data, to build more reliable chips and systems at lower manufacturing costs. For further information about this acquisition, see Note 4, Business Combination, to our condensed consolidated financial statements of this Quarterly Report on Form 10-Q.

Financial Highlights

Financial highlights for the three months ended September 30, 2021, are as follows:

● Total revenues were $29.6 million, an increase of $6.4 million, or 28%, compared to the three months ended September 30, 2020. Analytics revenue was $27.2 million, an increase of $12.8 million, or 90%, compared to the three months ended September 30, 2020. The increase in Analytics revenue was primarily driven by an $8.4 million increase in revenue from Cimetrix and Exensio software licenses due to higher demand from customers, and by a $4.5 million increase in revenue from CV systems and DFI systems due to an increase in hours worked across multiple contracts and customers. Integrated Yield Ramp revenue decreased $6.4 million, or 73%, compared to year-ago period primarily due to lower hours worked on fixed fees engagements, and a decrease in Gainshare royalty from certain customers due to the end of Gainshare periods.

● Costs of revenues increased $1.6 million, compared to the three months ended September 30, 2020, primarily due to increases in personnel-related costs due to higher headcount resulting from the acquisition of Cimetrix and higher benefit costs, cloud-delivery costs, software royalty and licenses expense, and amortization of other acquired intangible assets. These increases were partially offset by decreases in facilities and information technology-related costs, depreciation expenses and due to timing of deferral of contract costs.

● Net loss was $2.4 million, compared to $2.7 million for the three months ended September 30, 2020. The decrease in net loss was primarily attributable to an increase in total revenues and a decrease in general legal fees, partially offset by increases in costs of revenues and in operating expenses related primarily to our research and development, sales and marketing activities, general and administrative expenses related to increases in personnel-related costs due to higher headcount as a result of the Cimetrix acquisition and higher benefit costs, subcontractor costs, facilities and information technology-related costs, and an increase in income tax expense.

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● Cash, cash equivalents and short-term investments decreased $4.1 million to $141.2 million at September 30, 2021, from $145.3 million at December 31, 2020, primarily due to cash used to purchase property and equipment, repurchases of common stock and pay for taxes related to net share settlement of equity awards, partially offset by proceeds from the exercise of stock options and proceeds from purchases under our employee stock purchase plan and cash provided by operating activities.

Financial highlights for the nine months ended September 30, 2021, are as follows:

● Total revenues were $81.2 million, an increase of $15.5 million, or 24%, compared to the nine months ended September 30, 2020. Analytics revenue was $66.2 million, an increase of $23.4 million, or 55%, compared to the nine months ended September 30, 2020. The increase in Analytics revenue was primarily driven by a $25.9 million increase in revenue from Cimetrix and Exensio software licenses due to higher demand from customers, partially offset by a $2.2 million reduction in revenue from CV system and DFI systems due to a reduction in hours worked across multiple contracts and customers.  Integrated Yield Ramp revenue decreased $7.9 million, or 34%, compared to the year-ago period primarily due to a decrease in Gainshare royalty from certain customers due to the end of Gainshare periods and lower hours worked on fixed fee arrangements.

● Costs of revenues increased $5.6 million, compared to the nine months ended September 30, 2020, primarily due to increases in personnel-related costs due to higher headcount resulting from the acquisition of Cimetrix, higher benefit costs and merit increases, cloud-delivery costs, software royalty and licenses expense, and amortization of other acquired intangible assets. These increases were partially offset by decreases in facilities and information technology-related costs including depreciation expense, travel expenses, and due to timing of deferral of contract costs.

● Net loss was $14.5 million, compared to $6.9 million for the nine months ended September 30, 2020. The increase in net loss was primarily attributable to increases in costs of revenues, operating expenses related primarily to our research and development, sales and marketing activities, general and administrative expenses related to increases in personnel-related costs due to higher headcount as a result of the Cimetrix acquisition, higher benefit costs and merit increases, subcontractor costs, facilities and information technology-related costs and fees for legal services for the arbitration proceeding over a disputed customer contract, and amortization expense of other acquired intangibles assets, and increase in income tax expense, partially offset by increases in total revenues and decreases in general legal fees.

Critical Accounting Policies and Estimates

See Note 1, Summary of Significant Accounting Policy, to our 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, and to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.

There were no material changes during the nine months ended September 30, 2021, to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020.

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

General

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 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

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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, and the realization of deferred tax assets. Actual amounts may differ from such estimates under different assumptions or conditions.

Revenue Recognition

We derive revenue from two sources: Analytics and Integrated Yield Ramp.

Analytics Revenue

Analytics revenue is derived from the following primary offerings: licenses and services for standalone Software (which consists primarily of Exensio and Cimetrix products), SaaS (which consists primarily of Exensio products), and DFI and CV systems that do not include performance incentives based on customers’ yield achievement.

Revenue from standalone software is recognized depending on whether the license is perpetual or time-based. Perpetual (one-time charge) license software is recognized at the time of the inception of the arrangement when control transfers to the customers, if the software license is distinct from the services offered by us. Revenue from post-contract support is recognized over the contract term on a straight-line basis, because we are providing (i) support and (ii) unspecified software updates on a when-and-if available basis over the contract term. Revenue from time-based-licensed software is allocated to each performance obligation and is recognized either at a point in time or over time as follows. The license component is recognized at the time when control transfers to customers, with the post-contract support component recognized ratably over the committed term of the contract. For contracts with any combination of licenses, support, and other services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using the standalone selling price (“SSP”) attributed to each performance obligation.

Revenue from SaaS arrangements, which allow for the use of a cloud-based software product or service over a contractually determined period of time without taking possession of software, is accounted for as subscriptions and is recognized as revenue ratably, on a straight-line basis, over the subscription period beginning on the date the service is first made available to customers.

Revenue from DFI systems and CV systems that do not include performance incentives based on customers’ yield achievement is recognized primarily as services are performed. Where there are distinct performance obligations, we allocate revenue to all deliverables based on their SSPs. For these contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation. Where there are not discrete performance obligations, historically, revenue is primarily recognized as services are performed using a percentage of completion method based on costs or labor-hours inputs, whichever is the most appropriate measure of the progress towards completion of the contract. The estimation of percentage of completion method is complex and subject to many variables that require significant judgment.

Integrated Yield Ramp Revenue

Integrated Yield Ramp revenue is derived from our yield ramp engagements that include Gainshare or other performance incentives based on customers’ yield achievement.

Revenue under these project–based contracts, which are delivered over a specific period of time typically for a fixed fee component paid on a set schedule, is recognized as services are performed using a percentage of completion method based on costs or labor-inputs, whichever is the most appropriate measure of the progress towards completion of the contract. Where there are distinct performance obligations, we allocate revenue to all deliverables based on their SSPs and allocate the transaction price of the contract to each performance obligation on a relative basis using SSP. Similar to the services provided in connection with DFI systems and CV systems that are contributing to Analytics revenue, due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex and subject to many variables that require significant judgment.

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The Gainshare royalty contained in yield ramp contracts is a variable fee related to continued usage of our IP after the fixed-fee service period ends, based on the customers’ yield achievement. Revenue derived from Gainshare is contingent upon our customers reaching certain defined production yield levels. Gainshare royalty periods are generally subsequent to the delivery of all contractual services and performance obligations. We record Gainshare as a usage-based royalty derived from customers’ usage of intellectual property and record it in the same period in which the usage occurs.

Income Taxes

We are required to assess whether it is “more-likely-than-not” that we will realize our deferred tax assets. If we believe that they are not likely to be fully realizable before the expiration dates applicable to such assets, then to the extent we believe that recovery is not likely, we must establish a valuation allowance. Based on all available evidence, both positive and negative, we determined a full valuation allowance was appropriate for our federal and state net deferred tax assets (“DTAs”) in the fourth quarter of 2020, primarily driven by a cumulative loss incurred over the 12-quarter period ended December 31, 2020, and the likelihood that we may not utilize tax attributes before they begin to expire at the end of 2022. The valuation allowance was approximately $41.9 million as of September 30, 2021 and December 31, 2020. We will continue to evaluate the need for a valuation allowance and may change our conclusion in a future period based on changes in facts (e.g., 12-quarter cumulative profit, significant new revenue, etc.). If we conclude that we are more likely than not to utilize some or all of our U.S. DTAs, we will release some or all of our valuation allowance and our tax provision will decrease in the period in which we make such determination.

We evaluate our DTAs for realizability considering both positive and negative evidence, including our historical financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, tax planning strategies and any carryback availability. In evaluating the need for a valuation allowance, we estimate future taxable income based on management approved business plans. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between future projected operating performance and actual results. Changes in the net DTAs, less offsetting valuation allowance, in a period are recorded through the income tax provision and could have a material impact on the Condensed Consolidated Statements of Comprehensive Loss.

Our income tax calculations are based on application of applicable U.S. federal, state, or foreign tax law. Our tax filings, however, are subject to audit by the respective tax authorities. Accordingly, we recognize tax liabilities based upon our estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the Condensed Consolidated Statements of Comprehensive Loss. At September 30, 2021, no deferred taxes have been provided on undistributed earnings from our international subsidiaries. We intend to reinvest the earnings of our non-U.S. subsidiaries in those operations indefinitely. As such, we have not provided for any foreign withholding taxes on the earnings of foreign subsidiaries as of September 30, 2021. The earnings of our foreign subsidiaries are taxable in the U.S. in the year earned under the Global Intangible Low-Taxed Income rules implemented under 2017 Tax Cuts and Jobs Act.

Valuation of Long-lived Assets including Goodwill and Intangible Assets

We record goodwill when the purchase consideration of an acquisition exceeds the fair value of the net tangible and identified intangible assets as of the date of acquisition. We have one operating segment and one operating unit. We perform an annual impairment assessment of goodwill during the fourth quarter of each calendar year or more frequently, if required to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If the carrying amount exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill. There was no goodwill impairment for the three and nine months ended September 30, 2021.

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Our long-lived assets, excluding goodwill, consist of property and equipment and intangible assets. We periodically review our long-lived assets for impairment. For assets to be held and used, we initiate our review whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset group may not be recoverable. Recoverability of an asset group is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset group is expected to generate. If it is determined that an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds its fair value. There was no impairment of long-lived assets for the three and nine months ended September 30, 2021.

Recent Accounting Pronouncements and Accounting Changes

See Note 1, Summary of Significant Accounting Policy, to our condensed consolidated financial statements of 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.

Results of Operations

Discussion of Financial Data for the Three and Nine Months ended September 30, 2021 and 2020

Revenues, Costs of Revenues, and Gross Margin

	Three Months Ended										Nine Months Ended
	September 30,						Change				September 30,						Change
	2021			2020			$		%		2021			2020			$		%
(Dollars in thousands)
Revenues:
Analytics	$	27,194		$	14,346		$	12,848	90	%	$	66,165		$	42,766		$	23,399	55	%
Integrated Yield Ramp		2,361			8,766			(6,405)	(73)	%		15,009			22,912			(7,903)	(34)	%
Total revenues		29,555			23,112			6,443	28	%		81,174			65,678			15,496	24	%
Costs of revenues		11,070			9,493			1,577	17	%		32,518			26,926			5,592	21	%
Gross profit	$	18,485		$	13,619		$	4,866	36	%	$	48,656		$	38,752		$	9,904	26	%
Gross margin		63	%		59	%						60	%		59	%
Analytics revenue as a percentage of total revenues		92	%		62	%						82	%		65	%
Integrated Yield Ramp revenue as a percentage of total revenues		8	%		38	%						18	%		35	%

Analytics Revenue

Analytics revenue increased $12.8 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The increase in Analytics revenue was primarily driven by an $8.4 million increase in revenue from Cimetrix and Exensio software licenses due to higher demand from customers and a $4.5 million increase in revenue from CV systems and DFI systems due to an increase in hours worked across multiple contracts and customers.

Analytics revenue increased $23.4 million for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The increase in Analytics revenue was primarily driven by a $25.9 million increase in revenue from Cimetrix and Exensio software licenses due to higher demand from customers, partially offset by a $2.2 million reduction in revenue from CV systems and DFI systems due to a reduction in hours worked across multiple contracts and customers.

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Integrated Yield Ramp Revenue

Integrated Yield Ramp revenue decreased for the three and nine months ended September 30, 2021, compared to the prior year periods, due to a decrease in Gainshare royalty from certain customers due to the end of Gainshare periods and lower 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 royalty, 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 our ability to enter into new contracts containing Gainshare.

Our Analytics and Integrated Yield Ramp revenues may 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, 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 of costs incurred to provide and support our services, costs recognized in connection with licensing our software, and amortization of acquired technology. Services costs consist of material, employee compensation and related benefits, overhead costs, travel and allocated facilities-related costs. Software license costs consist of costs associated with 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 increase in costs of revenues of $1.6 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, was primarily due to (i) a $1.3 million increase in personnel-related costs due to higher headcount as a result of the Cimetrix acquisition and higher benefit costs, partially offset by a decrease in stock-based compensation expense, (ii) a $0.5 million increase in cloud-delivery costs, software royalty and licenses expense, and (iii) a $0.3 million increase amortization of other acquired intangible assets. These were partially offset by (i) a $0.3 million decrease in facilities and information technology-related costs including depreciation expense, and (ii) a $0.2 million decrease due to timing of deferral of contract costs.

The increase in costs of revenues of $5.6 million for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, was primarily due to (i) a $4.1 million increase in personnel-related costs due to higher headcount as a result of the Cimetrix acquisition, higher benefit costs, and merit increases, partially offset by a decrease in stock-based compensation expense, (ii) a $1.6 million increase in cloud-delivery costs, software royalty and licenses expense, and hardware costs, and (iii) a $1.1 million increase in amortization of other acquired intangibles assets. These were partially offset by (i) a $0.6 million decrease in facilities and information technology-related costs including depreciation expense, (ii) a $0.4 million decrease due to timing of deferral of contract costs, and (iii) a $0.2 million decrease in travel and other expenses.

Gross Margin

Gross margin increased for the three and nine months ended September 30, 2021, compared to the prior year periods, primarily due to higher Analytics revenue partially offset by an increase in costs of revenues.

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Operating Expenses:

Research and Development

	Three Months Ended										Nine Months Ended
	September 30,						Change				September 30,						Change
(Dollars in thousands)	2021			2020			$		%		2021			2020			$		%
Research and development	$	10,657		$	8,328		$	2,329	28	%	$	32,562		$	24,672		$	7,890	32	%
As a percentage of total revenues		36	%		36	%						40	%		38	%

Research and development expenses consist primarily of personnel-related costs to support product development activities, including compensation and benefits, outside development services, travel, facilities cost allocations, and stock-based compensation charges.

Research and development expenses increased for the three months ended September 30, 2021, compared to the year-ago period, primarily due to (i) a $1.7 million increase in personnel-related costs due to higher headcount as a result of the Cimetrix acquisition, higher benefit costs, and higher stock-based compensation expense, (ii) a $0.4 million increase in subcontractor expenses primarily related to our DFI systems and Exensio and Cimetrix software, and (iii) a $0.2 million increase in cloud-services related costs.

Research and development expenses increased for the nine months ended September 30, 2021, compared to the year-ago period, primarily due to (i) a $5.9 million increase in personnel-related costs due to higher headcount as a result of the Cimetrix acquisition, higher benefit costs, merit increases and higher stock-based compensation expense, (ii) a $1.8 million increase in subcontractor expenses primarily related to our DFI systems and Exensio and Cimetrix software, (iii) a $0.4 million increase in cloud-services related costs, and (iv) a $0.3 million increase in facilities and information technology-related costs. These were partially offset by (i) a $0.3 million decrease in software maintenance expense, and (ii) a $0.2 million decrease in other expenses.

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

Selling, General, and Administrative

	Three Months Ended										Nine Months Ended
	September 30,						Change				September 30,						Change
(Dollars in thousands)	2021			2020			$		%		2021			2020			$		%
Selling, general and administrative	$	9,609		$	8,420		$	1,189	14	%	$	28,482		$	24,052		$	4,430	18	%
As a percentage of total revenues		33	%		36	%						35	%		37	%

Selling, general, and administrative expenses consist primarily of compensation and benefits for sales, marketing and general and administrative personnel, legal and accounting services, marketing communications, travel and facilities cost allocations, and stock-based compensation charges.

Selling, general, and administrative expenses increased for the three months ended September 30, 2021, compared to the year-ago period, primarily due to (i) a $1.5 million increase in personnel-related costs due to higher headcount as a result of the Cimetrix acquisition, higher benefit costs and higher stock-based compensation expense, (ii) a $0.3 million increase in facilities and information technology-related costs including rent and depreciation expense, and (iii) a $0.1 million increase in cloud-services related costs. These were partially offset by (i) a $0.7 million decrease in general legal expenses, and (ii) a $0.1 million decrease in subcontractor expenses.

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Selling, general, and administrative expenses increased for the nine months ended September 30, 2021, compared to the year-ago period, primarily due to (i) a $4.0 million increase in personnel-related costs due to higher headcount as a result of the Cimetrix acquisition, higher benefit costs, merit increases and higher stock-based compensation expense, (ii) a $1.1 million increase in facilities and information technology-related costs including rent and depreciation expense, (iii) a $0.4 million increase in legal fees, primarily related to fees for legal services for the arbitration proceeding over a disputed customer contract, (iv) a $0.1 million increase in accounting and related fees, and (v) a $0.3 million increase in cloud-services related costs. These were partially offset by (i) a $1.3 million decrease in general legal expenses, and (ii) a $0.2 million decrease in other 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 our selling efforts in the future.

Amortization of Other Acquired Intangible Assets

	Three Months Ended								Nine Months Ended
	September 30,				Change				September 30,				Change
(Dollars in thousands)	2021		2020		$		%		2021		2020		$		%
Amortization of other acquired intangible assets	$	314	$	174	$	140	80	%	$	942	$	521	$	421	81	%

Amortization of other acquired intangible assets consists of amortization of intangibles acquired as a result of certain business combinations. The increases in amortization of other acquired intangible assets for the three and nine months ended September 30, 2021, compared to the year-ago periods, were primarily related to amortization of other acquired intangible assets related to the Cimetrix acquisition.

Interest and Other Expense (Income), Net

	Three Months Ended								Nine Months Ended
	September 30,				Change				September 30,				Change
(Dollars in thousands)	2021		2020		$		%		2021		2020		$		%
Interest and other expense (income), net	$	(194)	$	361	$	(555)	(154)	%	$	(391)	$	530	$	(921)	(174)	%

In fiscal 2021, interest and other expense (income), net, primarily consists of interest income, and foreign currency transaction exchange gains and losses. In fiscal 2020, interest and other expense (income), net, primarily consists of interest income, foreign currency transaction exchange gains and losses, and gains and losses from foreign currency forward contracts.

Interest and other expense (income), net decreased for the three months ended September 30, 2021, compared to the year-ago period, primarily due to a higher net favorable fluctuation in foreign exchange rates, partially offset by a decrease in other income.

Interest and other expense (income), net decreased for the nine months ended September 30, 2021, compared to the year-ago period, primarily due to a higher net favorable fluctuations in foreign exchange rates, and a decrease in loss related to foreign currency forward contracts, partially offset by a decrease in interest income due to lower interest rates and a decrease in other income.

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Income Tax Expense (Benefit)

	Three Months Ended								Nine Months Ended
	September 30,				Change				September 30,				Change
(Dollars in thousands)	2021		2020		$		%		2021		2020		$		%
Income tax expense (benefit)	$	506	$	(930)	$	1,436	(154)	%	$	1,549	$	(4,109)	$	5,658	(138)	%

Income tax expense increased for the three months ended September 30, 2021, compared to the same year-ago period, primarily due to the full valuation allowance placed against United States federal and state net deferred tax assets in the fourth quarter of 2020. Income tax expense recorded during the three months ended September 30, 2021 is primarily due to foreign taxes and changes in reserves for uncertain tax positions.

Income tax expense increased for the nine months ended September 30, 2021, compared to the year-ago period, primarily due to the full valuation allowance against United States federal net deferred tax assets in the nine months ended September 30, 2021, and one-time benefits in the first quarter of 2020, pursuant to the provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) passed on March 27, 2020, which provided for an income tax benefit in the nine months ended September 30, 2020.

Liquidity and Capital Resources

As of September 30, 2021, our working capital, defined as total current assets less total current liabilities, was $144.1 million, compared to $151.2 million as of December 31, 2020. Total cash and cash equivalents, and short-term investments were $141.2 million as of September 30, 2021, compared to cash and cash equivalents of $145.3 million as of December 31, 2020. As of September 30, 2021 and December 31, 2020, cash and cash equivalents held by our foreign subsidiaries were $7.8 million and $4.0 million, respectively. We believe that our existing cash resources and anticipated funds from operations will satisfy our cash requirements to fund our operating activities, capital expenditures, and other obligations for at least the next twelve months.

There has been no significant impact in respect to Liquidity and Capital Resources from the global COVID-19 pandemic.

Cimetrix Acquisition

On December 1, 2020, the Company completed the acquisition of Cimetrix Incorporated with a total payment made in 2020 of $28.6 million, net of cash acquired. In 2020, the Company held back $3.5 million of the purchase price (the “Holdback Amount”) to satisfy adjustments to the closing balance sheet and claims for indemnity arising out of breaches of certain representations, warranties and covenants, and certain other enumerated items in the merger agreement. During the nine months ended September 30, 2021, the Company recorded a measurement period adjustment, which reduced the Holdback Amount to $3.0 million. The Holdback Amount, as adjusted, is expected to be paid to the participating equity holders in December 2021. See Note 4, Business Combination to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for further discussion.

Repurchase of Company’s Common Stock

On June 4, 2020, the Company’s Board of Directors adopted a new stock repurchase program (the “2020 Program”) to repurchase up to $25.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, over the next two years. During the nine months ended September 30, 2021, 251,212 shares were repurchased at an average price of $18.01 per share, for a total price of $4.5 million under the 2020 Program.

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Cash Flow Data

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

	Nine Months Ended September 30,
	2021		2020		$ Change
(In thousands)
Net cash flows provided by (used in):
Operating activities	$	3,827	$	10,876	$	(7,049)
Investing activities		42,302		(55,348)		97,650
Financing activities		(5,495)		65,202		(70,697)
Effect of exchange rate changes on cash and cash equivalents		(192)		51		(243)
Net increase in cash and cash equivalents	$	40,442	$	20,781	$	19,661

Net Cash Flows Provided by Operating Activities

Cash flows provided by operating activities during the nine months ended September 30, 2021, consisted of net loss, adjusted for certain non-cash items which primarily consisted of depreciation and amortization, share-based compensation expense and deferred tax assets, and net change in operating assets and liabilities. The $7.0 million decrease in cash flows from operating activities for the nine months ended September 30, 2021, compared to the year-ago period, was driven primarily by a $6.1 million decrease in net change from operating assets and liabilities, and a $7.6 million increase in net loss, which was partially offset by a $6.7 million increase in non-cash adjustments to net loss, which was primarily due to an increase in amortization of acquired intangible assets of $1.5 million and a decrease in deferred taxes of $5.4 million.

The major contributors to the net change in operating assets and liabilities for the nine months ended September 30, 2021 were as follows:

● Prepaid expense and other current assets decreased by $1.8 million, primarily due to the timing of billing of contract assets related to fix-price service contracts,

● Other non-current assets increased by $1.2 million, primarily due to an increase in capitalized direct sales commission costs and prepaid expenses related to software licenses and cloud-subscription agreements,

● Accounts payable decreased by $2.0 million primarily due to the timing of payments of vendor invoices,

● Deferred revenues increased by $3.5 million primarily due to timing of billing and revenue recognition, and

● Billing in excess of recognized revenues decreased by $1.3 million primarily due to timing of billing and revenue recognition.

Net Cash Flows Provided by (Used in) Investing Activities

Cash provided by investing activities increased by $97.7 million for the nine months ended September 30, 2021, compared to the year-ago period.

For the nine months ended September 30, 2021, cash provided by investing activities primarily related to proceeds from maturities of short-term investments of $136.0 million, offset by purchases of short-term investments of $91.0 million and property and equipment of $2.7 million primarily related to the construction of additional eProbe tools. 

For the nine months ended September 30, 2020, net cash used in investing activities primarily related to purchases of about $50.0 million short-term investments and a $5.4 million property and equipment purchased and prepayment for our DFI solution, including construction of additional eProbe tools.

Net Cash Flows Provided by (Used in) Financing Activities

Net cash used in financing activities increased by $70.7 million for the nine months ended September 30, 2021 compared to the year-ago period. 

39

For the nine months ended September 30, 2021, net cash used in financing activities primarily consisted of $4.5 million for the repurchase of shares of our common stock and $3.3 million in cash payments for taxes related to net share settlement of equity awards, partially offset by $2.3 million of proceeds from our employee stock purchase plan and exercise of stock options. 

For the nine months ended September 30, 2020, net cash provided by financing activities primarily consisted of $65.0 million net proceeds from issuance of common stock in connection with the Securities Purchase Agreement with Advantest, and $3.5 million of proceeds from our employee stock purchase plan and exercise of stock options, partially offset by $3.3 million of cash payments for taxes related to net share settlement of equity awards.

Related Party Transactions

Refer to Note 3, Strategic Partnership Agreement with Advantest and Related Party Transactions, to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, for a discussion on related party transactions between the Company and Advantest.

Off-Balance Sheet Agreements

We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to three primary types of market risks: credit risk and counterparty risk, foreign currency exchange rate risk and interest rate risk. The following discusses our exposure to market risk related to changes in interest rates and foreign currency exchange rates. We do not currently own any equity investments, nor do we expect to own any in the foreseeable future. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors.

Interest Rate Risk and Credit Risk.  As of September 30, 2021, we had cash, cash equivalents and short-term investments of $141.2 million. Cash and cash equivalents consisted of cash and highly liquid money market instruments, and short-term investments consisted of U.S. Treasury bills. We would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest on our portfolio. A hypothetical increase in market interest rates of 100 basis points from the market rates in effect at September 30, 2021, would cause the fair value of these investments to decrease by an immaterial amount, which would not have significantly impacted our financial position or results of operations.

At September 30, 2021, and periodically throughout the year, we have maintained cash balances in various operating accounts in excess of federally insured limits. We limit the amount of credit exposure with any one financial institution by evaluating the creditworthiness of the financial institutions with which we invest.

Foreign Currency and Exchange Risk.  Certain of our payables for our international offices are denominated in the local currency, including the Euro, Yen and RMB. Therefore, a portion of our operating expenditures is subject to foreign currency risks. From time to time, we enter into foreign currency forward contracts to reduce the exposure to foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. We do not use foreign currency forward contracts for speculative or trading purposes. We record these forward contracts at fair value. The counterparty to these foreign currency forward contracts is a financial institution that we believe is creditworthy, and therefore, we believe the credit risk of counterparty non-performance is not significant. The change in fair value of these contracts is recorded into earnings as a component of other income (expense), net and offsets the change in fair value of foreign currency denominated monetary assets and liabilities, which is also recorded in other income (expense), net. As of September 30, 2021, we had no outstanding forward contracts.

40

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial and accounting officer, evaluated the effectiveness of our “disclosure controls and procedures” as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of September 30, 2021, in connection with the filing of this Quarterly Report on Form 10-Q. Based on that evaluation as of September 30, 2021, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in rules and forms of the SEC and accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the nine months ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are subject to various claims and legal proceedings that arise in the ordinary course of business. We accrue for losses related to litigation when a potential loss is probable and the loss can be reasonably estimated in accordance with FASB requirements. During the reported period, we were not a party to any material legal proceedings where a loss was probable, and thus no amount was accrued at September 30, 2021.

On May 6, 2020, we initiated an arbitration proceeding with the Hong Kong International Arbitration Center against SMIC New Technology Research & Development (Shanghai) Corporation (“SMIC”) due to SMIC’s failure to pay fees due to PDF under a series of contracts. We seek to recover the unpaid fees, a declaration requiring SMIC to pay fees under the contracts in the future, and costs associated with bringing the arbitration proceeding. The arbitration is on-going.

Item 1A. Risk Factors

As of the date of this Quarterly Report on Form 10-Q, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 11, 2021. Any of such factors could result in a significant or material adverse effect on our result of operations or financial conditions. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no stock repurchases during the third quarter of 2021.

Item 3. Defaults Upon Senior Securities

None.

41

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

42

INDEX TO EXHIBITS

Item 6. Exhibits

Exhibit Number	Description
31.01	Certification of the principal executive officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†
31.02	Certification of the principal financial and accounting officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†
32.01	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.02	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Comprehensive Loss, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.†
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).†

† Filed herewith.

** Furnished, and not filed.

43

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PDF SOLUTIONS, INC.
Date: November 9, 2021	By:	/s/ JOHN K. KIBARIAN
		John K. Kibarian
		President and Chief Executive Officer
		(principal executive officer)
Date: November 9, 2021	By:	/s/ ADNAN RAZA
		Adnan Raza
		Executive Vice President, Finance and Chief
		Financial Officer
		(principal financial and accounting officer)

44

EX-31.01

Exhibit 31.01

CERTIFICATIONS

I, John K. Kibarian, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PDF Solutions, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ John K. Kibarian
		John K. Kibarian
		President and Chief Executive Officer
		(principal executive officer)
Date: November 9, 2021

EX-31.02

Exhibit 31.02

CERTIFICATIONS

I, Adnan Raza, certify that:

1. I have reviewed this quarterly report on Form 10-Q of PDF Solutions, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ Adnan Raza
		Adnan Raza
		Executive Vice President, Finance
		and Chief Financial Officer
		(principal financial and accounting
		officer)
Date: November 9, 2021

EX-32.01

Exhibit 32.01

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of PDF Solutions, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2021, as filed with the Securities and Exchange Commission on November 9, 2021 (the “Report”), I, John K. Kibarian, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	By:	/s/ John K. Kibarian
		John K. Kibarian
		President and Chief Executive
		Officer
		(principal executive officer)
Date: November 9, 2021

EX-32.02

Exhibit 32.02

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of PDF Solutions, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2021, as filed with the Securities and Exchange Commission on November 9, 2021 (the “Report”), I, Adnan Raza, Executive Vice President, Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

10
	By:	/s/ Adnan Raza
		Adnan Raza
		Executive Vice President, Finance
		and Chief Financial Officer
		(principal financial and accounting
		officer)
Date: November 9, 2021

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2021	Nov. 03, 2021
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2021
Document Transition Report	false
Entity File Number	000-31311
Entity Registrant Name	PDF SOLUTIONS, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	25-1701361
Entity Address, Address Line One	2858 De La Cruz Blvd.
Entity Address, City or Town	Santa Clara
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	95050
City Area Code	408
Local Phone Number	280-7900
Title of 12(b) Security	Common Stock, $0.00015 par value
Trading Symbol	PDFS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		37,345,264
Entity Central Index Key	0001120914
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2021

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 71,238	$ 30,315
Short-term investments	69,992	114,981
Accounts receivable, net of allowance for doubtful accounts of $890 and $963 in 2021 and 2020, respectively	33,681	34,140
Prepaid expenses and other current assets	10,298	13,944
Total current assets	185,209	193,380
Property and equipment, net	37,821	39,242
Operating lease right-of-use assets, net	5,614	6,672
Goodwill	15,305	15,774
Intangible assets, net	22,106	24,573
Deferred tax assets, net	174	249
Other non-current assets	8,995	7,690
Total assets	275,224	287,580
Current liabilities:
Accounts payable	3,210	4,399
Accrued compensation and related benefits	8,125	8,339
Accrued and other current liabilities	5,854	6,309
Operating lease liabilities - current portion	1,740	1,926
Deferred revenues - current portion	22,207	19,895
Billings in excess of recognized revenues	3	1,337
Total current liabilities	41,139	42,205
Long-term income taxes payable	2,508	2,956
Non-current operating lease liabilities	5,501	6,516
Other non-current liabilities	2,621	1,397
Total liabilities	51,769	53,074
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, $0.00015 par value, 5,000 shares authorized, no shares issued and outstanding
Common stock, $0.00015 par value, 70,000 shares authorized; shares issued 47,248 and 46,400, respectively; shares outstanding 37,274 and 36,850, respectively	6	6
Additional paid-in-capital	418,933	407,173
Treasury stock at cost, 9,974 and 9,550 shares, respectively	(103,995)	(96,215)
Accumulated deficit	(90,721)	(76,233)
Accumulated other comprehensive loss	(768)	(225)
Total stockholders' equity	223,455	234,506
Total liabilities and stockholders' equity	$ 275,224	$ 287,580

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parentheticals) - USD ($) shares in Thousands, $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Accounts receivable, allowance for doubtful accounts	$ 890	$ 963
Preferred stock, par value (in dollars per share)	$ 0.00015	$ 0.00015
Preferred stock, shares authorized (in shares)	5,000	5,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.00015	$ 0.00015
Common stock, shares authorized (in shares)	70,000	70,000
Common stock, shares issued (in shares)	47,248	46,400
Common stock, shares outstanding (in shares)	37,274	36,850
Treasury stock, shares (in shares)	9,974	9,550

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Revenues:
Revenues	$ 29,555	$ 23,112	$ 81,174	$ 65,678
Costs and Expenses:
Costs of revenues	11,070	9,493	32,518	26,926
Research and development	10,657	8,328	32,562	24,672
Selling, general and administrative	9,609	8,420	28,482	24,052
Amortization of other acquired intangible assets	314	174	942	521
Interest and other expense (income), net	(194)	361	(391)	530
Loss before income taxes	(1,901)	(3,664)	(12,939)	(11,023)
Income tax expense (benefit)	506	(930)	1,549	(4,109)
Net loss	(2,407)	(2,734)	(14,488)	(6,914)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax	(226)	540	(540)	581
Change in unrealized losses related to available-for-sale debt securities, net of tax	1	(3)	(3)	(3)
Total other comprehensive income (loss)	(225)	537	(543)	578
Comprehensive loss	$ (2,632)	$ (2,197)	$ (15,031)	$ (6,336)
Basic (in dollars per share)	$ (0.06)	$ (0.08)	$ (0.39)	$ (0.21)
Diluted (in dollars per share)	$ (0.06)	$ (0.08)	$ (0.39)	$ (0.21)
Basic weighted-average shares outstanding (in shares)	37,221	35,479	37,067	33,696
Diluted weighted-average shares outstanding (in shares)	37,221	35,479	37,067	33,696
Analytics [Member]
Revenues:
Revenues	$ 27,194	$ 14,346	$ 66,165	$ 42,766
Integrated Yield Ramp [Member]
Revenues:
Revenues	$ 2,361	$ 8,766	$ 15,009	$ 22,912

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Common Stock Outstanding [Member]	Additional Paid-in Capital [Member]	Treasury Stock [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balances (in shares) at Dec. 31, 2019	32,503		9,294
Balances at Dec. 31, 2019	$ 5	$ 325,197	$ (91,695)	$ (35,870)	$ (1,480)	$ 196,157
Issuance of common stock in connection with employee stock purchase plan (in shares)	89
Issuance of common stock in connection with employee stock purchase plan		810				810
Issuance of common stock in connection with exercise of options (in shares)	21
Issuance of common stock in connection with exercise of options		161				161
Vesting of restricted stock units (in shares)	182
Purchases of treasury stock in connection with tax withholdings on restricted stock grants (in shares)			93
Purchases of treasury stock in connection with tax withholdings on restricted stock grants			$ (1,478)			(1,478)
Stock-based compensation expense		3,513				3,513
Comprehensive income (loss)				(528)	(166)	(694)
Balances (in shares) at Mar. 31, 2020	32,795		9,387
Balances at Mar. 31, 2020	$ 5	329,681	$ (93,173)	(36,398)	(1,646)	198,469
Balances (in shares) at Dec. 31, 2019	32,503		9,294
Balances at Dec. 31, 2019	$ 5	325,197	$ (91,695)	(35,870)	(1,480)	196,157
Comprehensive income (loss)						(6,336)
Balances (in shares) at Sep. 30, 2020	36,626		9,491
Balances at Sep. 30, 2020	$ 5	403,450	$ (94,992)	(42,784)	(902)	264,777
Balances (in shares) at Mar. 31, 2020	32,795		9,387
Balances at Mar. 31, 2020	$ 5	329,681	$ (93,173)	(36,398)	(1,646)	198,469
Issuance of common stock in connection with exercise of options (in shares)	56
Issuance of common stock in connection with exercise of options		463				463
Vesting of restricted stock units (in shares)	131
Purchases of treasury stock in connection with tax withholdings on restricted stock grants (in shares)			52
Purchases of treasury stock in connection with tax withholdings on restricted stock grants			$ (795)			(795)
Stock-based compensation expense		3,013				3,013
Comprehensive income (loss)				(3,652)	207	(3,445)
Balances (in shares) at Jun. 30, 2020	32,982		9,439
Balances at Jun. 30, 2020	$ 5	333,157	$ (93,968)	(40,050)	(1,439)	197,705
Issuance of common stock, net of issuance of $0.1 million (in shares)	3,307
Issuance of common stock, net of issuance of $0.1 million		65,077				65,077
Issuance of common stock in connection with employee stock purchase plan (in shares)	93
Issuance of common stock in connection with employee stock purchase plan		860				860
Issuance of common stock in connection with exercise of options (in shares)	101
Issuance of common stock in connection with exercise of options		1,210				1,210
Vesting of restricted stock units (in shares)	143
Purchases of treasury stock in connection with tax withholdings on restricted stock grants (in shares)			52
Purchases of treasury stock in connection with tax withholdings on restricted stock grants			$ (1,024)			(1,024)
Stock-based compensation expense		3,146				3,146
Comprehensive income (loss)				(2,734)	537	(2,197)
Balances (in shares) at Sep. 30, 2020	36,626		9,491
Balances at Sep. 30, 2020	$ 5	403,450	$ (94,992)	(42,784)	(902)	264,777
Balances (in shares) at Dec. 31, 2020	36,850		9,550
Balances at Dec. 31, 2020	$ 6	407,173	$ (96,215)	(76,233)	(225)	234,506
Issuance of common stock in connection with employee stock purchase plan (in shares)	100
Issuance of common stock in connection with employee stock purchase plan		921				921
Issuance of common stock in connection with exercise of options (in shares)	81
Issuance of common stock in connection with exercise of options		568				568
Vesting of restricted stock units (in shares)	149
Purchases of treasury stock in connection with tax withholdings on restricted stock grants (in shares)			73
Purchases of treasury stock in connection with tax withholdings on restricted stock grants			$ (1,463)			(1,463)
Repurchase of common stock (in shares)	(251)		251
Repurchase of common stock			$ (4,523)			(4,523)
Stock-based compensation expense		3,369				3,369
Comprehensive income (loss)				(7,597)	(528)	(8,125)
Balances (in shares) at Mar. 31, 2021	36,929		9,874
Balances at Mar. 31, 2021	$ 6	412,031	$ (102,201)	(83,830)	(753)	225,253
Balances (in shares) at Dec. 31, 2020	36,850		9,550
Balances at Dec. 31, 2020	$ 6	407,173	$ (96,215)	(76,233)	(225)	$ 234,506
Issuance of common stock in connection with exercise of options (in shares)						160
Comprehensive income (loss)						$ (15,031)
Balances (in shares) at Sep. 30, 2021	37,274		9,974
Balances at Sep. 30, 2021	$ 6	418,933	$ (103,995)	(90,721)	(768)	223,455
Balances (in shares) at Mar. 31, 2021	36,929		9,874
Balances at Mar. 31, 2021	$ 6	412,031	$ (102,201)	(83,830)	(753)	225,253
Issuance of common stock in connection with exercise of options (in shares)	39
Issuance of common stock in connection with exercise of options		290				290
Vesting of restricted stock units (in shares)	118
Purchases of treasury stock in connection with tax withholdings on restricted stock grants (in shares)			51
Purchases of treasury stock in connection with tax withholdings on restricted stock grants			$ (887)			(887)
Stock-based compensation expense		2,742				2,742
Comprehensive income (loss)				(4,484)	210	(4,274)
Balances (in shares) at Jun. 30, 2021	37,086		9,925
Balances at Jun. 30, 2021	$ 6	415,063	$ (103,088)	(88,314)	(543)	223,124
Issuance of common stock in connection with employee stock purchase plan (in shares)	9
Issuance of common stock in connection with employee stock purchase plan		114				114
Issuance of common stock in connection with exercise of options (in shares)	40
Issuance of common stock in connection with exercise of options		393				393
Vesting of restricted stock units (in shares)	139
Purchases of treasury stock in connection with tax withholdings on restricted stock grants (in shares)			49
Purchases of treasury stock in connection with tax withholdings on restricted stock grants			$ (907)			(907)
Stock-based compensation expense		3,363				3,363
Comprehensive income (loss)				(2,407)	(225)	(2,632)
Balances (in shares) at Sep. 30, 2021	37,274		9,974
Balances at Sep. 30, 2021	$ 6	$ 418,933	$ (103,995)	$ (90,721)	$ (768)	$ 223,455

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited) (Parentheticals) $ in Millions	3 Months Ended
	Sep. 30, 2020 USD ($)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited)
Issuance costs	$ 0.1

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Cash flows from operating activities:
Net loss	$ (14,488)	$ (6,914)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	4,806	5,030
Stock-based compensation expense	9,474	9,476
Amortization of acquired intangible assets	2,467	952
Amortization of costs capitalized to obtain revenue contracts	499	367
Deferred taxes	87	(5,309)
Others	125	268
Changes in operating assets and liabilities:
Accounts receivable	440	313
Prepaid expenses and other current assets	1,848	235
Operating lease right-of-use assets	1,043	1,048
Other non-current assets	(1,211)	1,442
Accounts payable	(1,969)	(3,900)
Accrued compensation and related benefits	(142)	227
Accrued and other liabilities	(167)	1,568
Deferred revenues	3,542	6,928
Billings in excess of recognized revenues	(1,334)	313
Operating lease liabilities	(1,193)	(1,168)
Net cash provided by operating activities	3,827	10,876
Cash flows from investing activities:
Proceeds from maturities of short-term investments	136,000
Purchases of short-term investments	(90,985)	(49,983)
Purchases of property and equipment	(2,713)	(4,786)
Prepayment for the purchase of property and equipment		(579)
Net cash provided by (used in) investing activities	42,302	(55,348)
Cash flows from financing activities:
Proceeds from exercise of stock options	1,251	1,834
Proceeds from employee stock purchase plan	1,035	1,670
Payments for taxes related to net share settlement of equity awards	(3,257)	(3,297)
Repurchases of common stock	(4,523)
Proceeds from issuance of common stock, net of issuance costs paid		64,995
Net cash provided by (used in) financing activities	(5,494)	65,202
Effect of exchange rate changes on cash and cash equivalents	(193)	51
Net change in cash, cash equivalents, and restricted cash	40,442	20,781
Cash, cash equivalents, and restricted cash at beginning of period	33,815	97,605
Cash, cash equivalents, and restricted cash at end of period	74,257	118,386
Reconciliation of cash, cash equivalents, and restricted cash to the balance sheets:
Cash and cash equivalents	71,238	118,386
Restricted cash	3,019
Cash, cash equivalents, and restricted cash at end of period	74,257	118,386
Supplemental disclosure of cash flow information:
Cash paid during the period for taxes	1,543	2,188
Cash paid for amounts included in the measurement of operating lease liabilities	1,538	1,598
Supplemental disclosure of noncash information:
Stock-based compensation capitalized as software development costs	0	190
Property and equipment received and accrued in accounts payable and accrued and other liabilities	247	161
Advances for purchase of fixed assets transferred from prepaid assets to property and equipment	963
Release of restricted cash reducing goodwill due to the acquisition purchase price adjustment	$ 469
Operating lease liabilities arising from obtaining right-of-use assets		151
Issuance costs for common stock included in accounts payable and accrued other liabilities		$ 82

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Note 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The interim unaudited condensed consolidated financial statements included herein have been prepared by PDF Solutions, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), including the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The interim unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary (consisting only of normal recurring adjustments) to present a fair statement of results for the interim periods presented. The operating results for any interim period are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all intercompany balances and transactions.

The condensed consolidated balance sheet at December 31, 2020, has been derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include revenue recognition, assumptions made in analysis of allowance for doubtful accounts, impairment of goodwill and long-lived assets, realization of deferred tax assets (“DTAs”), and accounting for lease obligations, stock-based compensation expense, and income taxes. Actual results could differ from those estimates.

The global COVID-19 pandemic has impacted the operations and purchasing decisions of companies worldwide. As of the date of issuance of the condensed consolidated financial statements, the Company is not aware of any specific event or circumstance relating to COVID-19 that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial statements.

Recent Accounting Standards

Accounting Standards Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, related to simplifying the accounting for income taxes. The guidance eliminates certain exceptions from Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also clarifies and simplifies other aspects of the accounting for income taxes. The guidance became effective for the Company beginning in the first quarter of 2021 on a

prospective basis. The Company adopted this standard on January 1, 2021, and it did not have a material impact on the Company’s condensed consolidated financial statements or the related disclosures.

In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU clarifies the interaction between accounting standards related to equity securities (ASC 321), equity method investments (ASC 323), and certain derivatives (ASC 815). The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. The Company adopted this standard on January 1, 2021, and it did not have a material impact on the Company’s condensed consolidated financial statements or the related disclosures.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model, which will result in earlier recognition of credit losses. Subsequent to the issuance of ASU No. 2016-13, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instrument, ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326) Targeted Transition Relief, ASU No. 2016-13, ASU No. 2019-10 Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and ASU No. 2019-11 Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The subsequent ASUs do not change the core principle of the guidance in ASU No. 2016-13. Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU No. 2016-13.

Additionally, ASU No. 2019-10 defers the effective date for the adoption of the new standard on credit losses for public filers that are considered small reporting companies (“SRC”) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which will be fiscal 2023 for the Company if it continues to be classified as an SRC. In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The subsequent amendments will have the same effective date and transition requirements as ASU No. 2016-13. Early adoption is permitted. Topic 326 requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. While the Company is currently evaluating the impact of Topic 326, the Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements or the related disclosure.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-20): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. Additionally, the ASU will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. The ASU will be effective for annual reporting periods beginning after December 15, 2023 for SRCs and interim periods within those annual periods. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its condensed consolidated financial statements or the related disclosures.

Management has reviewed other recently issued accounting pronouncements issued or proposed by the FASB, and does not believe any of these accounting pronouncements has had or will have a material impact on the condensed consolidated financial statements.

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Note 2 - REVENUE FROM CONTRACTS WITH CUSTOMERS

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 2 - REVENUE FROM CONTRACTS WITH CUSTOMERS

2. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company derives revenue from two sources: Analytics revenue and Integrated Yield Ramp revenue.

The Company recognizes revenue in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”). ASC 606 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. Revenue is recognized when control of products or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those promised products or services.

The Company determines revenue recognition through the following five steps:

● Identification of the contract, or contracts, with a customer

● Identification of the performance obligations in the contract

● Determination of the transaction price

● Allocation of the transaction price to the performance obligations in the contract

● Recognition of revenue when, or as, performance obligations are satisfied

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.

Contracts with multiple performance obligations

The Company enters into contracts that can include various combinations of licenses, products and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative basis using the standalone selling price.

Analytics Revenue

Analytics revenue is derived from the following primary offerings: licenses and services for standalone software (which is primarily Exensio^® and Cimetrix^® products), SaaS (which is primarily Exensio products), and DFI™ systems and CV^® systems that do not include performance incentives based on customers’ yield achievement.

Revenue from standalone software is recognized depending on whether the license is perpetual or time-based. Perpetual (one-time charge) license software is recognized at the time of the inception of the arrangement when control transfers to the customers, if the software license is considered as a separate performance obligation from the services offered by the Company. Revenue from post-contract support is recognized over the contract term on a straight-line basis, because we are providing (i) support and (ii) unspecified software updates on a when-and-if available basis over the contract term. Revenue from time-based-licensed software is allocated to each performance obligation and is recognized either at a point in time or over time as follows. The license component is recognized at the time when control transfers to customers, with the post-contract support component recognized ratably over the committed term of the contract. For contracts with any combination of licenses, support, and other services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using the standalone selling price (“SSP”) attributed to each performance obligation.

Revenue from SaaS arrangements, which allow for the use of a cloud-based software product or service over a contractually determined period of time without the customer having to take possession of software, is accounted for as a subscription and is recognized as revenue ratably, on a straight-line basis, over the subscription period beginning on the date the service is first made available to customers. For contracts with any combination of SaaS and related services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation.

Revenue from DFI systems and CV systems that do not include performance incentives based on customers’ yield achievement is recognized primarily as services are performed. Where there are distinct performance obligations, the Company allocates revenue to all deliverables based on their SSPs. For those contracts with multiple performance obligations,

the Company allocates the transaction price of the contract to each performance obligation on a relative basis using SSP attributed to each performance obligation. Where there are not discrete performance obligations, historically, revenue is primarily recognized as services are performed using a percentage of completion method based on costs or labor-hours inputs, whichever is the most appropriate measure of the progress towards completion of the contract. The estimation of percentage of completion method is complex and subject to many variables that require significant judgement. Please refer to “Significant Judgments” section of this Note for further discussion.

Integrated Yield Ramp Revenue

Integrated Yield Ramp revenue is derived from the Company’s fixed-fee engagements that include performance incentives based on customers’ yield achievement (which consists primarily of Gainshare royalties) typically based on customer’s wafer shipments, pertaining to these fixed-price contracts, which royalties are variable.

Revenue under these project–based contracts, which are delivered over a specific period of time, typically for a fixed fee component paid on a set schedule, is recognized as services are performed using a percentage of completion method based on costs or labor-inputs, whichever is the most appropriate measure of the progress towards completion of the contract. Where there are distinct performance obligations, the Company allocates revenue to all deliverables based on their SSPs and allocates the transaction price of the contract to each performance obligation on a relative basis using SSP. Similar to the services provided in connection with DFI systems and CV systems that are contributing to Analytics revenue, due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex and subject to many variables that require significant judgement. Please refer to “Significant Judgments” section of this Note for further discussion.

The Gainshare royalty contained in IYR contracts is a variable fee related to continued usage of the Company’s intellectual property after the fixed-fee service period ends, based on a customer’s yield achievement. Revenue derived from Gainshare is contingent upon the Company’s customers reaching certain defined production yield levels. Gainshare royalty periods are generally subsequent to the delivery of all contractual services and performance obligations. The Company records Gainshare as a usage-based royalty derived from customers’ usage of intellectual property and records it in the same period in which the usage occurs.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into the timing of the transfer of goods and services and the geographical regions. The Company determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The Company’s performance obligations are satisfied either over time or at a point-in-time. The following table represents a disaggregation of revenue by timing of revenue:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Over time	72		55	%	60		56	%
Point-in-time	28		45	%	40		44	%
Total	100	%	100	%	100	%	100	%

International revenues accounted for approximately 53% and 57% of our total revenues during the three and nine months ended September 30, 2021, respectively, compared to 67% and 60% of our total revenues during the three and nine months ended September 30, 2020, respectively. See Note 11, Customer and Geographic Information.

Significant Judgments

Judgments and estimates are required under ASC 606. Due to the complexity of certain contracts, the actual revenue recognition treatment required under ASC 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.

For revenue under project-based contracts for fixed-price implementation services, revenue is recognized as services are performed using a percentage-of-completion method based on costs or labor-hours input method, whichever is the most appropriate measure of the progress towards completion of the contract. Due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex, subject to many variables and requires significant judgment. Key factors reviewed by the Company to estimate costs to complete each contract are future labor and product costs and expected productivity efficiencies. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in revenue on a cumulative catch-up basis in the period in which the circumstances that gave rise to the revision become known.

The Company’s contracts with customers often include promises to transfer products, licenses software and provide services, including professional services, technical support services, and rights to unspecified updates to a customer. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. The Company rarely licenses software on a standalone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where SSP is not directly observable because the Company does not license the software or sell the service separately, the Company determines the SSP using information that may include market conditions and other observable inputs.

The Company is required to record Gainshare royalty revenue in the same period in which the usage occurs. Because the Company generally does not receive the acknowledgment reports from its customers during a given quarter within the time frame necessary to adequately review the reports and include the actual amounts in quarterly results for such quarter, the Company accrues the related revenue based on estimates of customers underlying sales achievement. The Company’s estimation process can be based on historical data, trends, seasonality, changes in the contract rate, knowledge of the changes in the industry and changes in the customer’s manufacturing environment learned through discussions with customers and sales personnel. As a result of accruing revenue for the quarter based on such estimates, adjustments will be required in the following quarter to true-up revenue to the actual amounts reported.

Contract Balances

The Company performs its obligations under a contract with a customer by licensing software or providing services in exchange for consideration from the customer. The timing of the Company’s performance often differs from the timing of the customer’s payment, which results in the recognition of a receivable, a contract asset or a contract liability.

The Company classifies the right to consideration in exchange for software or services transferred to a customer as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional, as compared to a contract asset, which is a right to consideration that is conditional upon factors other than the passage of time. The majority of the Company’s contract assets represent unbilled amounts related to fixed-price service contracts when the revenue recognized exceeds the amount billed to the customer. The contract assets are generally classified as current and are recorded on a net basis with deferred revenue (i.e. contract liabilities) at the contract level. The total contract assets included in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets was immaterial as of September 30, 2021 and $3.7 million as of December 31, 2020. The Company did not record any asset impairment charges related to contract assets for the periods presented.

Deferred revenues consist substantially of amounts invoiced in advance of revenue recognition and are recognized as the revenue recognition criteria are met. Deferred revenues that will be recognized during the succeeding twelve-month period are recorded as current deferred revenues and the remaining portion is recorded in the other non-current liabilities in the Condensed Consolidated Balance Sheets. At September 30, 2021 and December 31, 2020, the non-current portion of deferred revenues included in non-current liabilities was $2.5 million and $1.2 million, respectively. Revenue recognized that was included in the deferred revenues and billings in excess of recognized revenues balances at the beginning of each reporting period was $7.0 million and $4.7 million during the three months ended September 30, 2021 and 2020, respectively, and $13.8 million and $9.5 million during the nine months ended September 30, 2021 and 2020, respectively.

At September 30, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that were unsatisfied or partially unsatisfied was approximately $180.9 million. Given the applicable contract terms with customers, the majority of this amount is expected to be recognized as revenue over the next two years, with the remainder in the following three years. This amount does not include insignificant contracts to which the customer is not committed, nor significant contracts for which we recognize revenue equal to the amount we have the right to invoice for services performed, or future sales-based or usage-based royalty payments in exchange for a license of intellectual property. This amount is subject to change due to future revaluations of variable consideration, terminations, other contract modifications, or currency adjustments. The estimated timing of the recognition of remaining unsatisfied performance obligations is subject to change and is affected by changes to the scope, change in timing of delivery of products and services, or contract modifications.

The adjustment to revenue recognized from performance obligations satisfied (or partially satisfied) in previous periods was a decrease of $0.2 million and $1.2 million during the three months ended September 30, 2021 and 2020, respectively, and an increase of $34,000 and $0.4 million during the nine months ended September 30, 2021 and 2020, respectively. These amounts primarily represent changes in estimated percentage-of-completion based contracts and changes in actual versus estimated Gainshare royalty.

Costs to obtain or fulfill a contract

The Company capitalizes the incremental costs to obtain or fulfill a contract with a customer, including direct sales commissions and related fees, when it expects to recover those costs. Amortization expense related to these capitalized costs is recognized over the period associated with the revenue from which the cost was incurred. Total capitalized direct sales commission costs included in prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2021, and December 31, 2020 were $0.8 million and $0.8 million, respectively. Total capitalized direct sales commission costs included in other non-current assets in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2021, and December 31, 2020 were $1.8 million and $0.9 million, respectively. Amortization of these assets were $0.2 million and $0.1 million during the three months ended September 30, 2021 and 2020, respectively, and $0.5 million and $0.4 million during the nine months ended September 30, 2021 and 2020, respectively. There was no impairment loss in relation to the costs capitalized for the periods presented.

The Company does not adjust the transaction price for the effects of a significant financing component when the period between the transfers of the promised good or service to the customer and payment for that good or service by the customer is expected to be one year or less. The Company assessed each of its revenue generating arrangements in order to determine whether a significant financing component exists, and determined its contracts did not include a significant financing component during the three and nine months ended September 30, 2021 and 2020.

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Note 3 - STRATEGIC PARTNERSHIP AGREEMENT WITH ADVANTEST AND RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 3 - STRATEGIC PARTNERSHIP AGREEMENT WITH ADVANTEST AND RELATED PARTY TRANSACTIONS

3. STRATEGIC PARTNERSHIP AGREEMENT WITH ADVANTEST AND RELATED PARTY TRANSACTIONS

On July 29, 2020, the Company entered into a long-term strategic partnership with Advantest Corporation through its wholly-owned subsidiary, Advantest America, Inc. (collectively referred to herein as “Advantest”) that included the following agreements.

● A Securities Purchase Agreement for the purchase by Advantest of an aggregate of 3,306,924 shares of the Company’s common stock for aggregate gross proceeds of $65.2 million and a related Stockholder Agreement.

● An Amendment #1 to that certain Software License and Related Services Agreement, dated as of March 25, 2020, for an exclusive commercial arrangement in which the Company and Advantest will collaborate on, and the Company will initially host, develop and maintain, an Advantest-specific cloud layer on the Exensio platform.

● An Amended and Restated Master Development Agreement with Advantest, pursuant to which the Company and Advantest agreed to collaborate on extensions to or combinations of both of their existing technology and new technology to address mutual customers’ needs through one or more development phases subject to certain conditions as set forth therein. Costs and expenses incurred related to this agreement have not been significant for the three and nine months ended September 30, 2021.

● A Master Commercial Terms and Support Services Agreement for the commercialization and support of integrated products of the Company and Advantest that are the outcome of the above development agreement. No material costs and expenses were incurred related to the Commercial Agreement with Advantest during the three and nine months ended September 30, 2021.

Analytics revenue recognized from Advantest were $2.7 million and $7.9 million during the three and nine months ended September 30, 2021, respectively, and $1.0 million during each of the three and nine months ended September 30, 2020. There was no outstanding accounts receivable from Advantest as of September 30, 2021 and December 31, 2020, and deferred revenue amounted to $9.6 million and nil as of September 30, 2021 and December 31, 2020, respectively. There was no occurrence of any termination events under these agreements as of the issuance of these condensed consolidated financial statements.

The Company carries out transactions with Advantest on arm’s length commercial customary terms. For more information about these agreements with Advantest, see Note 3, Strategic Partnership Agreement with Advantest and Related Party Transactions, of Part II, Item 8. “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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Note 4 - BUSINESS COMBINATION

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 4 - BUSINESS COMBINATION

4. BUSINESS COMBINATION

On December 1, 2020 (the “Acquisition Date”), the Company acquired all the stock of Cimetrix Incorporated (“Cimetrix”). Total payment made for this acquisition in 2020 amounted to $28.6 million, net of cash acquired, and was funded from the available cash of the Company. In 2020, the Company held back $3.5 million of the purchase price (the “Holdback Amount”) to satisfy adjustments and claims for indemnity arising out of breaches of certain representations, warranties and covenants, and certain other enumerated items in the merger agreement. During the first quarter of 2021, the Company recorded a measurement period adjustment as described below which reduced the Holdback Amount to $3.0 million. This reduction was released from the restricted cash on the Company’s Condensed Consolidated Balance Sheet. The Holdback Amount, as adjusted, is expected to be paid to the participating equity holders on approximately the twelve-month anniversary of the Acquisition Date. The Holdback Amount is recorded under accrued and other current liabilities account in the Condensed Consolidated Balance Sheets.

The Company is required to maintain cash specifically designated to pay for the Holdback Amount, which the Company has classified as restricted cash. Restricted cash amounted to $3.0 million and $3.5 million as of September 30, 2021 and December 31, 2020, respectively, and is included in the “Prepaid expenses and other current assets” account in the Company’s Condensed Consolidated Balance Sheets.

The Company is still finalizing the allocation of the purchase price to the individual assets acquired. Accordingly, the estimates set forth below are preliminary and are subject to change during the measurement period, which is not to exceed one year from the acquisition date. During the measurement period, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. During the first quarter of 2021, the Company recorded a measurement period adjustment to the estimated fair values initially recorded in 2020, which resulted in a reduction in Holdback Amount of $0.5 million with a corresponding change to goodwill. The measurement period adjustment did not have an impact on the Company’s Condensed Consolidated Statements of Comprehensive Loss during the three and nine months ended September 30, 2021.

As of September 30, 2021, the allocation of the purchase price for this acquisition is as follows (in thousands, except amortization period):

			Amortization
	Amount		Period (Years)
Assets
Fair value of tangible assets (including cash of $5,900)	$	8,403
Fair value of intangible assets:
Developed technology		12,541	8
In-process R&D		3,635	N/A
Customer relationships		1,967	10
Noncompetition agreements		848	3
Tradenames and trademarks		808	10
Goodwill		13,012	N/A
Total assets acquired	$	41,214
Liabilities
Accounts payable and accrued expenses	$	1,437
Deferred revenue		391
Operating lease liabilities		132
Deferred tax liabilities		1,743
Total liabilities assumed	$	3,703
Total purchase price allocation	$	37,511

Pursuant to the merger agreement, the Company will also pay approximately $1.4 million to certain employees, subject to their continued employment with Cimetrix or the Company, at various scheduled payout dates through the second quarter of 2024. This amount will be recognized as compensation expense over the period as services are rendered. As of September 30, 2021, the estimated remaining total cash payout is approximately $0.9 million. The accrued compensation balance included under accrued compensation and related benefits account in the Company’s Condensed Consolidated Balance Sheet was $0.4 million and $0.3 million as of September 30, 2021 and December 31, 2020, respectively.

Transaction expenses related to the acquisition of Cimetrix amounted to $1.6 million in 2020. These costs consist of professional fees and administrative costs and were expensed as incurred in the Company’s Condensed Consolidated Statement of Comprehensive Loss. No transaction costs were incurred during the three months ended September 30, 2021. Transaction costs were immaterial during the nine months ended September 30, 2021.

The financial results of the acquisition of Cimetrix were considered immaterial for purposes of unaudited pro forma financial disclosures.

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Note 5 - BALANCE SHEET COMPONENTS

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 5 - BALANCE SHEET COMPONENTS

5. BALANCE SHEET COMPONENTS

Accounts receivable

Accounts receivable include amounts that are unbilled at the end of the period that are expected to be billed and collected within a 12-month period. Unbilled accounts receivable, included in accounts receivable, totaled $8.6 million and $7.2 million as of September 30, 2021, and December 31, 2020, respectively. Unbilled accounts receivable that are not expected to be billed and collected during the succeeding 12-month period is recorded in other non-current assets and totaled $1.6 million and $2.0 million as of September 30, 2021, and December 31, 2020, respectively.

Property and equipment

Property and equipment, net consist of the following (in thousands):

	September 30,		December 31,
	2021		2020
Computer equipment	$	11,715	$	11,585
Software		5,433		5,451
Furniture, fixtures and equipment		2,505		2,507
Leasehold improvements		6,270		6,255
Laboratory and other equipment		3,650		3,451
Test equipment		24,865		26,010
Construction-in-progress		23,432		20,278
		77,870		75,537
Less: accumulated depreciation and amortization		(40,049)		(36,295)
Total	$	37,821	$	39,242

Test equipment includes systems assets at customer sites that are contributing to DFI™ systems revenues. The construction-in-progress balance related to construction of DFI™ systems assets totaled $21.5 million and $18.9 million as of September 30, 2021, and December 31, 2020, respectively. Depreciation and amortization expense was $1.5 million and $1.7 million during the three months ended September 30, 2021 and 2020, respectively, and $4.8 million and $5.0 million during the nine months ended September 30, 2021 and 2020, respectively.

Goodwill and Intangible Assets, Net

The change in the carrying amount of goodwill during the nine months ended September 30, 2021, was as follows (in thousands):

Balance at beginning of period, January 1, 2021	$	15,774
Measurement period acquisition adjustment (1)		469
Balance at end of period, September 30, 2021	$	15,305

(1) Goodwill adjustment was recorded within the measurement period with a corresponding reduction in the Holdback Amount. See Note 4, Business Combination.

There were no impairments to goodwill during the nine months ended September 30, 2021.

Intangible assets, net, consisted of the following (in thousands):

		September 30, 2021						December 31, 2020
	Amortization	Gross				Net		Gross				Net
	Period	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	(Years)	Amount		Amortization		Amount		Amount		Amortization		Amount
Acquired identifiable intangibles:
Customer relationships	1-10	$	9,407	$	(5,880)	$	3,527	$	9,407	$	(5,398)	$	4,009
Developed technology	4-9		30,000		(16,652)		13,348		30,000		(14,987)		15,013
Tradename and trademarks	2-10		1,598		(785)		813		1,598		(706)		892
Patent	7-10		1,800		(1,630)		170		1,800		(1,600)		200
Noncompetition agreements	3		848		(235)		613		848		(24)		824
In-process R&D	*		3,635		—		3,635		3,635		—		3,635
Total		$	47,288	$	(25,182)	$	22,106	$	47,288	$	(22,715)	$	24,573

* Non-amortizing intangible asset

The Company expects annual amortization of acquired identifiable intangible assets to be as follows (in thousands):

Year Ending December 31,	Amount
2021 (remaining three months)	$	754
2022		3,013
2023		2,990
2024		2,592
2025		2,427
2026 and thereafter		6,695
Total future amortization expense	$	18,471

Intangible assets are amortized over their useful lives unless these lives are determined to be indefinite. The weighted average amortization period for acquired identifiable intangible assets was 5.7 years as of September 30, 2021. Intangible assets amortization expense included under “Cost of revenues” and “Amortization of other intangible assets” account in the Condensed Consolidated Statements of Comprehensive Loss was $0.8 million and $0.3 million during the three months ended September 30, 2021 and 2020, respectively, and $2.5 million and $1.0 million during the nine months ended September 30, 2021 and 2020, respectively. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. During the three and nine months ended September 30, 2021, there were no indicators of impairment related to the Company’s intangible assets.

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Note 6 - LEASES

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 6 - LEASES

6. LEASES

The Company leases administrative and sales offices and certain equipment under non-cancellable operating leases, which contain various renewal options and, in some cases, require payment of common area costs, taxes and utilities. These operating leases expire at various dates through 2028. The Company had no leases that were classified as a financing lease as of September 30, 2021, and December 31, 2020.

Lease expense was comprised of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Operating lease expense	$	448	$	455	$	1,417	$	1,362
Short-term lease and variable lease expense (1)		196		127		602		401
Total lease expense	$	644	$	582	$	2,019	$	1,763

(1) Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease expense for the periods presented primarily included common area maintenance charges.

Supplemental information related to operating leases was as follows:

	September 30,			December 31,
	2021			2020
Weighted average remaining lease term under operating ROU leases (in years)		6.0			6.4
Weighted average discount rate for operating lease liabilities		5.25	%		5.24	%

Maturities of operating lease liabilities as of September 30, 2021, were as follows (in thousands):

Year Ending December 31,	Amount(1)
2021 (remaining three months)	$	477
2022		1,707
2023		1,389
2024		1,073
2025		1,088
2026 and thereafter		2,703
Total future minimum lease payments	$	8,437
Less: Interest(2)		(1,196)
Present value of future minimum lease payments under operating lease liabilities (3)	$	7,241

(1) As of September 30, 2021, the total operating lease liability includes approximately $1.1 million related to an option to extend a lease term that is reasonably certain to be exercised.

(2) Calculated using incremental borrowing interest rate for each lease.

(3) Includes the current portion of operating lease liabilities of $1.7 million as of September 30, 2021.

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Note 7 - STOCKHOLDERS EQUITY

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 7 - STOCKHOLDERS EQUITY

7. STOCKHOLDERS’ EQUITY

Issuance of Common Stock

On July 30, 2020, the Company issued 3,306,924 shares of common stock, at a purchase price of $19.7085 per share, for aggregate gross proceeds of $65.2 million pursuant to a Securities Purchase Agreement with Advantest dated July 29, 2020. Issuance costs related to this private placement aggregated $0.1 million.

Stock Repurchase Program

On May 28, 2020, the Company’s 2018 stock repurchase program (the “2018 Program”) that was originally adopted on May 29, 2018, expired. Through May 28, 2020, approximately 786,000 shares had been repurchased at an average price of $12.43 per share, for a total price of $9.8 million under the 2018 Program.

On June 4, 2020, the Company’s Board of Directors adopted a new stock repurchase program (the “2020 Program”) to repurchase up to $25.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, over the next two years. During the nine months ended September 30, 2021, 251,212 shares were repurchased under the 2020 Program at an average price of $18.01 per share for an aggregate total price of $4.5 million.

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Note 8 - EMPLOYEE BENEFIT PLANS

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 8 - EMPLOYEE BENEFIT PLANS

8. EMPLOYEE BENEFIT PLANS

On September 30, 2021, the Company had the following stock-based compensation plans:

Employee Stock Purchase Plan

In July 2001, the Company’s stockholders initially approved the 2001 Employee Stock Purchase Plan, which was subsequently amended and restated in 2010 (as amended, the “2010 Purchase Plan”) to extend the term of the plan through May 17, 2020. Under the 2010 Purchase Plan, eligible employees could contribute up to 10% of their compensation, as defined in the 2010 Purchase Plan, towards the purchase of shares of PDF common stock at a price of 85% of the lower of the fair market value at the beginning of the offering period or the end of the purchase period. The 2010 Purchase Plan provided for twenty-four-month offering periods with four six-month purchase periods in each offering period. The 2010 Purchase Plan expired on May 17, 2020. Existing offering periods will continue until they expire in accordance with their terms, and

participation in such offering periods will continue through the applicable expiration date. The final offering period under the 2010 Purchase Plan expires on January 31, 2022. On June 15, 2021, the Company’s stockholders approved the 2021 Employee Stock Purchase Plan, which has a ten-year term (the “2021 Purchase Plan”). The terms of 2021 Purchase Plan are substantially similar to those of the 2010 Purchase Plan. A twenty-four-month offering period under the 2021 Purchase Plan commenced on August 1, 2021.

The Company estimated the fair value of purchase rights granted under the 2010 and the 2021 Purchase Plans during the period using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions, resulting in the following weighted average fair values:

	2021 Purchase Plan			2010 Purchase Plan
	Nine Months Ended September 30,			Nine Months Ended September 30,
	2021			2021			2020
Expected life (in years)		1.25			1.25			1.25
Volatility		48.00	%		34.25	%		34.25	%
Risk-free interest rate		0.11	%		1.43	%		1.43	%
Expected dividend		—			—			—
Weighted average fair value of purchase rights granted during the period	$	6.71		$	4.83		$	4.83

During the three months ended September 30, 2021 and 2020, a total of approximately 9,000 and 93,000 shares were issued under the 2010 Purchase Plan. During the nine months ended September 30, 2021 and 2020, a total of approximately 109,000 and 183,000 shares, respectively, were issued under the 2010 Purchase Plan, at a weighted-average purchase price of $9.53 per share and $9.12 per share, respectively. As of September 30, 2021, unrecognized compensation cost related to the 2021 Purchase Plan was $2.0 million and there was a negligible amount of unrecognized compensation cost related to the 2010 Purchase Plan. These costs are expected to be recognized over a weighted average period of 1.75 years.

Stock Incentive Plans

On November 16, 2011, the Company’s stockholders initially approved the 2011 Stock Incentive Plan, which has been amended and restated and approved by the Company’s stockholders a number of times since then (as amended, the “2011 Plan”). Under the 2011 Plan, the Company may award stock options, stock appreciation rights (“SARs”), stock grants or stock units covering shares of the Company’s common stock to employees, directors, non-employee directors and contractors. The aggregate number of shares reserved for awards under this plan is 11,500,000 shares, plus up to 3,500,000 shares previously issued under the 2001 Stock Plan adopted by the Company in 2001, which expired in 2011 (the “2001 Plan”) that are either (i) forfeited or (ii) repurchased by the Company or are shares subject to awards previously issued under the 2001 Plan that expire or that terminate without having been exercised or settled in full on or after November 16, 2011. In case of awards other than options or SARs, the aggregate number of shares reserved under the 2011 Plan will be decreased at a rate of 1.33 shares issued pursuant to such awards. The exercise price for stock options must generally be at prices no less than the fair market value at the date of grant. Stock options generally expire ten years from the date of grant and become vested and exercisable over a four-year period.

Stock options granted under the 2001 Plan generally expire ten years from the date of grant and become vested and exercisable over a four-year period. Although no new awards may be granted under the 2001 Plan, awards made under the 2001 Plan that are currently outstanding remain subject to the terms of each such plan.

As of September 30, 2021, 12.1 million shares of common stock were reserved to cover stock-based awards under the 2011 Plan, of which 3.4 million shares were available for future grant. The number of shares reserved and available under the 2011 Plan includes 0.5 million shares that were subject to awards previously made under the 2001 Plan and were forfeited, expired or repurchased by the Company after the adoption of the 2011 Plan through September 30, 2021. As of September 30, 2021, there were no outstanding awards that had been granted outside of the 2011 or 2001 Plans (collectively, the “Stock Plans”).

The Company estimated the fair value of share-based awards granted under the 2011 Stock Plan during the period using the Black-Scholes-Merton option-pricing model. There were no stock options granted during the three and nine months ended September 30, 2021. The fair value of stock options granted during the three and nine months ended September 30, 2020, was estimated as of the grant-date using the following assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Expected life (in years)		—			4.45			—			4.45
Volatility		—	%		43.92	%		—	%		40.90	%
Risk-free interest rate		—	%		0.23	%		—	%		0.60	%
Expected dividend		—			—			—			—
Weighted average fair value per share of options granted during the period	$	—		$	6.92		$	—		$	5.75

Stock-Based Compensation

Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally four years. Stock-based compensation expense before taxes related to the Company’s stock plans and employee stock purchase plan was allocated as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Costs of revenues	$	670	$	790	$	1,860	$	2,582
Research and development		1,299		1,148		4,013		3,613
Selling, general and administrative		1,394		1,192		3,601		3,281
Stock-based compensation expenses (1)	$	3,363	$	3,130	$	9,474	$	9,476

(1) The stock-based compensation expense during the three and nine months ended September 30, 2020, includes immaterial expense or credit adjustments related to cash-settled SARs granted to certain employees. The Company accounted for these awards as liability awards and the amount was included in accrued compensation and related benefits. All remaining outstanding SARs were fully exercised in the third quarter of 2020.

Stock-based compensation expense that was recorded as capitalized software development costs under property and equipment, net, was nil during the three and nine months ended September 30, 2021, and nil and $0.2 million during the three and nine months ended September 30, 2020, respectively.

Additional information with respect to options under the Stock Plans during the nine months ended September 30, 2021, is as follows:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Options (in	Price		Term	Value (in
	thousands)	per Share		(Years)	thousands)
Outstanding, January 1, 2021	456	$	10.95
Granted	—		—
Exercised	(160)		7.80
Canceled	(3)		13.52
Expired	(4)		6.90
Outstanding, September 30, 2021	289	$	12.72	3.30	$	2,983
Vested and expected to vest, September 30, 2021	286	$	12.69	3.25	$	2,956
Exercisable, September 30, 2021	240	$	12.27	2.43	$	2,590

The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of $23.04 per share as of September 30, 2021. The total intrinsic value of options exercised was $1.9 million during the nine months ended September 30, 2021.

As of September 30, 2021, there was $0.2 million of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of 2.0 years. The total fair value of shares vested was $0.1 million during the nine months ended September 30, 2021.

Non-vested restricted stock unit activity during the nine months ended September 30, 2021, was as follows:

		Weighted
		Average Grant
	Shares	Date Fair Value
	(in thousands)	Per Share
Non-vested, January 1, 2021	1,747	$	16.33
Granted	894	$	18.42
Vested	(579)	$	16.08
Forfeited	(81)	$	16.85
Non-vested, September 30, 2021	1,981	$	17.33

As of September 30, 2021, there was $27.1 million of total unrecognized compensation cost related to non-vested restricted stock units. That cost is expected to be recognized over a weighted average period of 2.7 years. Restricted stock units do not have rights to dividends prior to vesting.

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Note 9 - INCOME TAXES

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 9 - INCOME TAXES

9. INCOME TAXES

Income tax expense increased $5.7 million for the nine months ended September 30, 2021, to a $1.5 million income tax expense as compared to an income tax benefit of $4.1 million for the nine months ended September 30, 2020. The Company’s effective tax rate (expense) benefit was (12%) and 37% for the nine months ended September 30, 2021 and 2020, respectively. The Company’s effective tax rate increased in the nine months ended September 30, 2021, as compared to the same period in 2020, primarily due to a full valuation allowance against U.S. net deferred tax assets in the fourth quarter of 2020 as well as a one-time benefit in the first quarter of 2020 pursuant to the provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) passed on March 27, 2020.

The Company’s total amount of unrecognized tax benefits, excluding interest and penalties, as of September 30, 2021, was $14.7 million, of which $1.9 million, if recognized, would affect the Company’s effective tax rate. The Company’s total amount of unrecognized tax benefits, excluding interest and penalties, as of December 31, 2020, was $14.3 million, of which $2.2 million, if recognized, would affect the Company’s effective tax rate. As of September 30, 2021, the Company has recorded unrecognized tax benefits of $2.5 million, including interest and penalties of $0.7 million, as long-term taxes payable in its Condensed Consolidated Balance Sheet. The remaining $12.8 million has been recorded net of the Company’s DTAs, which is subject to a full valuation allowance.

The valuation allowance was approximately $41.9 million as of September 30, 2021, and December 31, 2020, which was related to U.S. net federal and state DTAs. The net deferred tax assets balance as of September 30, 2021, and December 31, 2020, was $0.2 million and $0.2 million, respectively.

The Company conducts business globally and, as a result, files numerous consolidated and separate income tax returns in the U.S. federal, various state and foreign jurisdictions. For U.S. federal and California income tax purposes, the statute of limitations currently remains open for the tax years ending 2017 to present and 2016 to present, respectively. In addition, due to NOL carryback claims, the tax years 2013 through 2015 may be subject to federal examination and all of the net operating loss and research and development credit carryforwards that may be utilized in future years may be subject to federal and state examination. The Company is not subject to income tax examinations in any other of its major foreign subsidiaries’ jurisdictions.

On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the ongoing COVID-19 pandemic. The American Rescue Plan includes, among other things, provisions relating to Paycheck Protection Program (PPP) loan expansion, defined pension contributions, excessive employee remuneration, and the repeal of the election to allocate interest expense on a worldwide basis. Under ASC 740 the effects of new legislation are recognized upon enactment. Accordingly, the American Rescue Plan became effective beginning in the quarter ended March 31, 2021. Such provisions did not have a material impact on the Company’s condensed consolidated financial statements.

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Note 10 - NET LOSS PER SHARE

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 10 - NET LOSS PER SHARE

10. NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by weighted average number of common shares outstanding for the period (excluding outstanding stock options and shares subject to repurchase). Diluted net loss per share is computed using the weighted-average number of common shares outstanding for the period plus the potential effect of dilutive securities which are convertible into common shares (using the treasury stock method), except in cases in which the effect would be anti-dilutive. The following is a reconciliation of the numerators and denominators used in computing basic and diluted net loss per share (in thousands except per share amount):

	Three Months Ended September 30,				Nine Months Ended December 31,
	2021		2020		2021		2020
Numerator:
Net loss	$	(2,407)	$	(2,734)	$	(14,488)	$	(6,914)
Denominator:
Basic weighted-average shares outstanding		37,221		35,479		37,067		33,696
Effect of dilutive options and restricted stock units		—		—		—		—
Diluted weighted-average shares outstanding		37,221		35,479		37,067		33,696
Net loss per share, basic and diluted	$	(0.06)	$	(0.08)	$	(0.39)	$	(0.21)

For the three and nine months ended September 30, 2021 and 2020, because the Company was in a loss position, basic net loss per share is the same as diluted net loss per share as the inclusion of the potential common shares would have been anti-dilutive.

The following table sets forth potential shares of common stock that were not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Outstanding options	128	310	182	362
Non-vested restricted stock units	915	1,084	997	820
Employee Stock Purchase Plan	30	190	14	146
Total	1,073	1,584	1,193	1,328

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Note 11 - CUSTOMER AND GEOGRAPHIC INFORMATION

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 11 - CUSTOMER AND GEOGRAPHIC INFORMATION

11. CUSTOMER AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in deciding how to allocate resources and in assessing performance.

The Company’s chief operating decision maker, the chief executive officer, reviews discrete financial information presented on a consolidated basis for purposes of regularly making operating decisions, allocation of resources, and assessing financial performance. Accordingly, the Company considers itself to be in one operating and reporting segment, specifically the provision of services for differentiated data and analytics solutions to the semiconductor and electronics industries.

The Company had revenues from individual customers in excess of 10% of total revenues as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
Customer	2021		2020		2021		2020
A	*	%	18	%	*	%	23	%
B	*	%	14	%	*	%	*	%
D	25	%	*	%	12	%	*	%
E	*	%	*	%	10	%	*	%

* represents less than 10%

The Company had gross accounts receivable from individual customers in excess of 10% of gross accounts receivable as follows:

	September 30,		December 31,
Customer	2021		2020
A	*	%	16	%
B	13	%	*	%
C	10	%	11	%
D	25	%	*	%

* represents less than 10%

Revenues from customers by geographic area based on the location of the customers’ work sites are as follows (amounts in thousands):

	Three Months Ended September 30,
	2021				2020
			Percentage				Percentage
	Revenues		of Revenues		Revenues		of Revenues
United States	$	13,983	47	%	$	7,710	33	%
China		4,038	14			6,747	29
Rest of the world		11,534	39			8,655	38
Total revenue	$	29,555	100	%	$	23,112	100	%

	Nine Months Ended September 30,
	2021				2020
			Percentage				Percentage
	Revenues		of Revenues		Revenues		of Revenues
United States	$	34,634	43	%	$	26,242	40	%
China		10,065	12			10,200	16
Japan		8,543	10			3,414	5
Taiwan		5,411	7			8,038	12
Rest of the world		22,521	28			17,784	27
Total revenue	$	81,174	100	%	$	65,678	100	%

Long-lived assets, net by geographic area are as follows (in thousands):

	September 30,		December 31,
	2021		2020
United States	$	41,811	$	43,663
Rest of the world		1,624		2,251
Total long-lived assets, net	$	43,435	$	45,914

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Note 12 - FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 12 - FAIR VALUE MEASUREMENTS

12. FAIR VALUE MEASUREMENTS

Fair value is the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The multiple assumptions used to value financial instruments are referred to as inputs, and a hierarchy for inputs used in measuring fair value is established, that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. These inputs are ranked according to a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

Level 1 -	Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 -	Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 -	Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following table represents the Company’s assets measured at fair value on a recurring basis as of September 30, 2021, and December 31, 2020, and the basis for those measurements (in thousands):

	Fair Value Measurements Using
			Quoted
			Prices in
			Active		Significant
			Markets for		Other
			Identical		Observable		Significant
	September 30,		Assets		Inputs		Unobservable
Assets	2021		(Level 1)		(Level 2)		Inputs (Level 3)
Cash equivalents
Money market mutual funds	$	55,039	$	55,039	$	—	$	—
Short-term investments (available-for-sale debt securities)
U.S. Treasury bills		69,992		69,992		—		—
Total	$	125,031	$	125,031	$	—	$	—

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
Assets	2020		(Level 1)		(Level 2)		(Level 3)
Cash equivalents
Money market mutual funds	$	18,012	$	18,012	$	—	$	—
Short-term investments (available-for-sale debt securities)
U.S. Treasury bills		114,981		114,981		—		—
Total	$	132,993	$	132,993	$	—	$	—

As of September 30, 2021, and December 31, 2020, the amortized cost of the Company’s cash equivalents and short-term investments approximated their fair value due to their short-term maturities, and there have been no events or changes in circumstances that would have had a significant effect on the fair value of these securities in the periods presented. There were no material realized or unrealized gains or losses, either individually or in the aggregate.

From time to time, the Company enters into foreign currency forward contracts to reduce the exposure to foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily on third-party accounts payables and intercompany balances. The primary objective of the Company’s hedging program is to reduce volatility of earnings related to foreign currency exchange rate fluctuations. The counterparty to these foreign currency forward contracts is a financial institution that the Company believes is creditworthy, and therefore, the Company believes the credit risk of counterparty nonperformance is not significant. These foreign currency forward contracts are not designated for hedge accounting treatment.

Therefore, the change in fair value of these contracts is recorded into earnings as a component of other expense (income), net, and offsets the change in fair value of the foreign currency denominated assets and liabilities, which is also recorded in other expense (income), net in the Company’s Condensed Consolidated Statements of Comprehensive Loss.There was no realized gain or loss from foreign currency forward contracts during the three and nine months ended September 30, 2021, or the three months ended September 30, 2020. The Company recognized a net realized loss of $0.2 million from foreign currency forward contracts during the nine months ended September 30, 2020.

As applicable, the Company carries these derivatives financial instruments on its Condensed Consolidated Balance Sheets at their fair values. The Company’s foreign currency forward contracts are classified as Level 2 because they are not actively

traded and the valuation inputs are based on quoted prices and market observable data of similar instruments. As of September 30, 2021, and December 31, 2020, the Company had no outstanding forward contracts.

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Note 13 - COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Note 13 - COMMITMENTS AND CONTINGENCIES

13. COMMITMENTS AND CONTINGENCIES

Strategic Partnership with Advantest — See Note 4, Business Combination, for the discussion about the Company’s commitments under the strategic partnership with Advantest.

Operating Leases — Refer to Note 6, Leases, for the discussion about the Company’s lease commitments.

Indemnifications — The Company generally provides a warranty to its customers that its software will perform substantially in accordance with documented specifications typically for a period of 90 days following initial delivery of its products. The Company also indemnifies certain customers from third-party claims of intellectual property infringement relating to the use of its products. Historically, costs related to these guarantees have not been significant. The Company is unable to estimate the maximum potential impact of these guarantees on its future results of operations.

Purchase Obligations — The Company has purchase obligations with certain suppliers for the purchase of goods and services entered in the ordinary course of business. As of September 30, 2021, total outstanding purchase obligations were $11.3 million, the majority of which is due within the next 24 months.

Indemnification of Officers and Directors — As permitted by the Delaware general corporation law, the Company has included a provision in its certificate of incorporation to eliminate the personal liability of its officers and directors for monetary damages for breach or alleged breach of their fiduciary duties as officers or directors, other than in cases of fraud or other willful misconduct.

In addition, the Bylaws of the Company provide that the Company is required to indemnify its officers and directors even when indemnification would otherwise be discretionary, and the Company is required to advance expenses to its officers and directors as incurred in connection with proceedings against them for which they may be indemnified. The Company has entered into indemnification agreements with its officers and directors containing provisions that are in some respects broader than the specific indemnification provisions contained in the Delaware general corporation law. The indemnification agreements require the Company to indemnify its officers and directors against liabilities that may arise by reason of their status or service as officers and directors other than for liabilities arising from willful misconduct of a culpable nature, to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors’ and officers’ insurance if available on reasonable terms. The Company has obtained directors’ and officers’ liability insurance in amounts comparable to other companies of the Company’s size and in the Company’s industry. Since a maximum obligation of the Company is not explicitly stated in the Company’s Bylaws or in its indemnification agreements and will depend on the facts and circumstances that arise out of any future claims, the overall maximum amount of the obligations cannot be reasonably estimated.

Legal Proceedings — From time to time, the Company is subject to various claims and legal proceedings that arise in the ordinary course of business. The Company accrues for losses related to litigation when a potential loss is probable and the loss can be reasonably estimated in accordance with FASB requirements. As of September 30, 2021, the Company was not a party to any material legal proceedings where a loss was probable, and thus no amount was accrued.

On May 6, 2020, the Company initiated an arbitration proceeding with the Hong Kong International Arbitration Center against SMIC New Technology Research & Development (Shanghai) Corporation (“SMIC”) due to SMIC’s failure to pay fees due to PDF under a series of contracts. The Company seeks to recover the unpaid fees, a declaration requiring SMIC to pay fees under the contracts in the future, and costs associated with bringing the arbitration proceeding. The arbitration is on-going.

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Note 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The interim unaudited condensed consolidated financial statements included herein have been prepared by PDF Solutions, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), including the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The interim unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary (consisting only of normal recurring adjustments) to present a fair statement of results for the interim periods presented. The operating results for any interim period are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all intercompany balances and transactions.

The condensed consolidated balance sheet at December 31, 2020, has been derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include revenue recognition, assumptions made in analysis of allowance for doubtful accounts, impairment of goodwill and long-lived assets, realization of deferred tax assets (“DTAs”), and accounting for lease obligations, stock-based compensation expense, and income taxes. Actual results could differ from those estimates.

The global COVID-19 pandemic has impacted the operations and purchasing decisions of companies worldwide. As of the date of issuance of the condensed consolidated financial statements, the Company is not aware of any specific event or circumstance relating to COVID-19 that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial statements.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Standards

Accounting Standards Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, related to simplifying the accounting for income taxes. The guidance eliminates certain exceptions from Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also clarifies and simplifies other aspects of the accounting for income taxes. The guidance became effective for the Company beginning in the first quarter of 2021 on a

prospective basis. The Company adopted this standard on January 1, 2021, and it did not have a material impact on the Company’s condensed consolidated financial statements or the related disclosures.

In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU clarifies the interaction between accounting standards related to equity securities (ASC 321), equity method investments (ASC 323), and certain derivatives (ASC 815). The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. The Company adopted this standard on January 1, 2021, and it did not have a material impact on the Company’s condensed consolidated financial statements or the related disclosures.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model, which will result in earlier recognition of credit losses. Subsequent to the issuance of ASU No. 2016-13, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instrument, ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326) Targeted Transition Relief, ASU No. 2016-13, ASU No. 2019-10 Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and ASU No. 2019-11 Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The subsequent ASUs do not change the core principle of the guidance in ASU No. 2016-13. Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU No. 2016-13.

Additionally, ASU No. 2019-10 defers the effective date for the adoption of the new standard on credit losses for public filers that are considered small reporting companies (“SRC”) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which will be fiscal 2023 for the Company if it continues to be classified as an SRC. In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The subsequent amendments will have the same effective date and transition requirements as ASU No. 2016-13. Early adoption is permitted. Topic 326 requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. While the Company is currently evaluating the impact of Topic 326, the Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements or the related disclosure.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-20): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. Additionally, the ASU will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. The ASU will be effective for annual reporting periods beginning after December 15, 2023 for SRCs and interim periods within those annual periods. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its condensed consolidated financial statements or the related disclosures.

Management has reviewed other recently issued accounting pronouncements issued or proposed by the FASB, and does not believe any of these accounting pronouncements has had or will have a material impact on the condensed consolidated financial statements.

Revenue from Contract with Customer [Policy Text Block]

The Company recognizes revenue in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”). ASC 606 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. Revenue is recognized when control of products or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those promised products or services.

The Company determines revenue recognition through the following five steps:

● Identification of the contract, or contracts, with a customer

● Identification of the performance obligations in the contract

● Determination of the transaction price

● Allocation of the transaction price to the performance obligations in the contract

● Recognition of revenue when, or as, performance obligations are satisfied

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.

Contracts with multiple performance obligations

The Company enters into contracts that can include various combinations of licenses, products and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative basis using the standalone selling price.

Accounts Receivable [Policy Text Block]

Accounts receivable include amounts that are unbilled at the end of the period that are expected to be billed and collected within a 12-month period.

Goodwill and Intangible Assets, Intangible Assets, Policy [Policy Text Block]

Intangible assets are amortized over their useful lives unless these lives are determined to be indefinite.

Share-based Payment Arrangement [Policy Text Block]

In July 2001, the Company’s stockholders initially approved the 2001 Employee Stock Purchase Plan, which was subsequently amended and restated in 2010 (as amended, the “2010 Purchase Plan”) to extend the term of the plan through May 17, 2020. Under the 2010 Purchase Plan, eligible employees could contribute up to 10% of their compensation, as defined in the 2010 Purchase Plan, towards the purchase of shares of PDF common stock at a price of 85% of the lower of the fair market value at the beginning of the offering period or the end of the purchase period. The 2010 Purchase Plan provided for twenty-four-month offering periods with four six-month purchase periods in each offering period. The 2010 Purchase Plan expired on May 17, 2020. Existing offering periods will continue until they expire in accordance with their terms, and

participation in such offering periods will continue through the applicable expiration date. The final offering period under the 2010 Purchase Plan expires on January 31, 2022. On June 15, 2021, the Company’s stockholders approved the 2021 Employee Stock Purchase Plan, which has a ten-year term (the “2021 Purchase Plan”). The terms of 2021 Purchase Plan are substantially similar to those of the 2010 Purchase Plan. A twenty-four-month offering period under the 2021 Purchase Plan commenced on August 1, 2021.

Earnings Per Share, Policy [Policy Text Block]

Basic net loss per share is computed by dividing net loss by weighted average number of common shares outstanding for the period (excluding outstanding stock options and shares subject to repurchase). Diluted net loss per share is computed using the weighted-average number of common shares outstanding for the period plus the potential effect of dilutive securities which are convertible into common shares (using the treasury stock method), except in cases in which the effect would be anti-dilutive.

Segment Reporting, Policy [Policy Text Block]

The Company’s chief operating decision maker, the chief executive officer, reviews discrete financial information presented on a consolidated basis for purposes of regularly making operating decisions, allocation of resources, and assessing financial performance. Accordingly, the Company considers itself to be in one operating and reporting segment, specifically the provision of services for differentiated data and analytics solutions to the semiconductor and electronics industries.

Fair Value Measurement, Policy [Policy Text Block]

Fair value is the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The multiple assumptions used to value financial instruments are referred to as inputs, and a hierarchy for inputs used in measuring fair value is established, that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. These inputs are ranked according to a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

Level 1 -	Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 -	Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3 -	Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

From time to time, the Company enters into foreign currency forward contracts to reduce the exposure to foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily on third-party accounts payables and intercompany balances. The primary objective of the Company’s hedging program is to reduce volatility of earnings related to foreign currency exchange rate fluctuations. The counterparty to these foreign currency forward contracts is a financial institution that the Company believes is creditworthy, and therefore, the Company believes the credit risk of counterparty nonperformance is not significant. These foreign currency forward contracts are not designated for hedge accounting treatment.

Therefore, the change in fair value of these contracts is recorded into earnings as a component of other expense (income), net, and offsets the change in fair value of the foreign currency denominated assets and liabilities, which is also recorded in other expense (income), net in the Company’s Condensed Consolidated Statements of Comprehensive Loss.There was no realized gain or loss from foreign currency forward contracts during the three and nine months ended September 30, 2021, or the three months ended September 30, 2020. The Company recognized a net realized loss of $0.2 million from foreign currency forward contracts during the nine months ended September 30, 2020.

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Note 2 - REVENUE FROM CONTRACTS WITH CUSTOMERS (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Disaggregation of Revenue [Table Text Block]

The Company’s performance obligations are satisfied either over time or at a point-in-time. The following table represents a disaggregation of revenue by timing of revenue:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Over time	72		55	%	60		56	%
Point-in-time	28		45	%	40		44	%
Total	100	%	100	%	100	%	100	%

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Note 4 - BUSINESS COMBINATION (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

As of September 30, 2021, the allocation of the purchase price for this acquisition is as follows (in thousands, except amortization period):

			Amortization
	Amount		Period (Years)
Assets
Fair value of tangible assets (including cash of $5,900)	$	8,403
Fair value of intangible assets:
Developed technology		12,541	8
In-process R&D		3,635	N/A
Customer relationships		1,967	10
Noncompetition agreements		848	3
Tradenames and trademarks		808	10
Goodwill		13,012	N/A
Total assets acquired	$	41,214
Liabilities
Accounts payable and accrued expenses	$	1,437
Deferred revenue		391
Operating lease liabilities		132
Deferred tax liabilities		1,743
Total liabilities assumed	$	3,703
Total purchase price allocation	$	37,511

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Note 5 - BALANCE SHEET COMPONENTS (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Property, Plant and Equipment [Table Text Block]

Property and equipment, net consist of the following (in thousands):

	September 30,		December 31,
	2021		2020
Computer equipment	$	11,715	$	11,585
Software		5,433		5,451
Furniture, fixtures and equipment		2,505		2,507
Leasehold improvements		6,270		6,255
Laboratory and other equipment		3,650		3,451
Test equipment		24,865		26,010
Construction-in-progress		23,432		20,278
		77,870		75,537
Less: accumulated depreciation and amortization		(40,049)		(36,295)
Total	$	37,821	$	39,242

Schedule of Goodwill [Table Text Block]

The change in the carrying amount of goodwill during the nine months ended September 30, 2021, was as follows (in thousands):

Balance at beginning of period, January 1, 2021	$	15,774
Measurement period acquisition adjustment (1)		469
Balance at end of period, September 30, 2021	$	15,305

(1) Goodwill adjustment was recorded within the measurement period with a corresponding reduction in the Holdback Amount. See Note 4, Business Combination.

Schedule of Finite-Lived Intangible Assets [Table Text Block]

Intangible assets, net, consisted of the following (in thousands):

		September 30, 2021						December 31, 2020
	Amortization	Gross				Net		Gross				Net
	Period	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	(Years)	Amount		Amortization		Amount		Amount		Amortization		Amount
Acquired identifiable intangibles:
Customer relationships	1-10	$	9,407	$	(5,880)	$	3,527	$	9,407	$	(5,398)	$	4,009
Developed technology	4-9		30,000		(16,652)		13,348		30,000		(14,987)		15,013
Tradename and trademarks	2-10		1,598		(785)		813		1,598		(706)		892
Patent	7-10		1,800		(1,630)		170		1,800		(1,600)		200
Noncompetition agreements	3		848		(235)		613		848		(24)		824
In-process R&D	*		3,635		—		3,635		3,635		—		3,635
Total		$	47,288	$	(25,182)	$	22,106	$	47,288	$	(22,715)	$	24,573

* Non-amortizing intangible asset

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

The Company expects annual amortization of acquired identifiable intangible assets to be as follows (in thousands):

Year Ending December 31,	Amount
2021 (remaining three months)	$	754
2022		3,013
2023		2,990
2024		2,592
2025		2,427
2026 and thereafter		6,695
Total future amortization expense	$	18,471

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Note 6 - LEASES (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Lease, Cost [Table Text Block]

Lease expense was comprised of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Operating lease expense	$	448	$	455	$	1,417	$	1,362
Short-term lease and variable lease expense (1)		196		127		602		401
Total lease expense	$	644	$	582	$	2,019	$	1,763

(1) Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease expense for the periods presented primarily included common area maintenance charges.

Supplemental information related to operating leases was as follows:

	September 30,			December 31,
	2021			2020
Weighted average remaining lease term under operating ROU leases (in years)		6.0			6.4
Weighted average discount rate for operating lease liabilities		5.25	%		5.24	%

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Maturities of operating lease liabilities as of September 30, 2021, were as follows (in thousands):

Year Ending December 31,	Amount(1)
2021 (remaining three months)	$	477
2022		1,707
2023		1,389
2024		1,073
2025		1,088
2026 and thereafter		2,703
Total future minimum lease payments	$	8,437
Less: Interest(2)		(1,196)
Present value of future minimum lease payments under operating lease liabilities (3)	$	7,241

(1) As of September 30, 2021, the total operating lease liability includes approximately $1.1 million related to an option to extend a lease term that is reasonably certain to be exercised.

(2) Calculated using incremental borrowing interest rate for each lease.

(3) Includes the current portion of operating lease liabilities of $1.7 million as of September 30, 2021.

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Note 8 - EMPLOYEE BENEFIT PLANS (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	2021 Purchase Plan			2010 Purchase Plan
	Nine Months Ended September 30,			Nine Months Ended September 30,
	2021			2021			2020
Expected life (in years)		1.25			1.25			1.25
Volatility		48.00	%		34.25	%		34.25	%
Risk-free interest rate		0.11	%		1.43	%		1.43	%
Expected dividend		—			—			—
Weighted average fair value of purchase rights granted during the period	$	6.71		$	4.83		$	4.83

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Expected life (in years)		—			4.45			—			4.45
Volatility		—	%		43.92	%		—	%		40.90	%
Risk-free interest rate		—	%		0.23	%		—	%		0.60	%
Expected dividend		—			—			—			—
Weighted average fair value per share of options granted during the period	$	—		$	6.92		$	—		$	5.75

Share-based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block]

Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally four years. Stock-based compensation expense before taxes related to the Company’s stock plans and employee stock purchase plan was allocated as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Costs of revenues	$	670	$	790	$	1,860	$	2,582
Research and development		1,299		1,148		4,013		3,613
Selling, general and administrative		1,394		1,192		3,601		3,281
Stock-based compensation expenses (1)	$	3,363	$	3,130	$	9,474	$	9,476

(1) The stock-based compensation expense during the three and nine months ended September 30, 2020, includes immaterial expense or credit adjustments related to cash-settled SARs granted to certain employees. The Company accounted for these awards as liability awards and the amount was included in accrued compensation and related benefits. All remaining outstanding SARs were fully exercised in the third quarter of 2020.

Share-based Payment Arrangement, Option, Activity [Table Text Block]

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Options (in	Price		Term	Value (in
	thousands)	per Share		(Years)	thousands)
Outstanding, January 1, 2021	456	$	10.95
Granted	—		—
Exercised	(160)		7.80
Canceled	(3)		13.52
Expired	(4)		6.90
Outstanding, September 30, 2021	289	$	12.72	3.30	$	2,983
Vested and expected to vest, September 30, 2021	286	$	12.69	3.25	$	2,956
Exercisable, September 30, 2021	240	$	12.27	2.43	$	2,590

Share-based Payment Arrangement, Restricted Stock Unit, Activity [Table Text Block]

		Weighted
		Average Grant
	Shares	Date Fair Value
	(in thousands)	Per Share
Non-vested, January 1, 2021	1,747	$	16.33
Granted	894	$	18.42
Vested	(579)	$	16.08
Forfeited	(81)	$	16.85
Non-vested, September 30, 2021	1,981	$	17.33

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Note 10 - NET LOSS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended December 31,
	2021		2020		2021		2020
Numerator:
Net loss	$	(2,407)	$	(2,734)	$	(14,488)	$	(6,914)
Denominator:
Basic weighted-average shares outstanding		37,221		35,479		37,067		33,696
Effect of dilutive options and restricted stock units		—		—		—		—
Diluted weighted-average shares outstanding		37,221		35,479		37,067		33,696
Net loss per share, basic and diluted	$	(0.06)	$	(0.08)	$	(0.39)	$	(0.21)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

The following table sets forth potential shares of common stock that were not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Outstanding options	128	310	182	362
Non-vested restricted stock units	915	1,084	997	820
Employee Stock Purchase Plan	30	190	14	146
Total	1,073	1,584	1,193	1,328

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Note 11 - CUSTOMER AND GEOGRAPHIC INFORMATION (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Schedule of Revenue by Major Customers by Reporting Segments [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
Customer	2021		2020		2021		2020
A	*	%	18	%	*	%	23	%
B	*	%	14	%	*	%	*	%
D	25	%	*	%	12	%	*	%
E	*	%	*	%	10	%	*	%

* represents less than 10%

The Company had gross accounts receivable from individual customers in excess of 10% of gross accounts receivable as follows:

	September 30,		December 31,
Customer	2021		2020
A	*	%	16	%
B	13	%	*	%
C	10	%	11	%
D	25	%	*	%

* represents less than 10%

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

Revenues from customers by geographic area based on the location of the customers’ work sites are as follows (amounts in thousands):

	Three Months Ended September 30,
	2021				2020
			Percentage				Percentage
	Revenues		of Revenues		Revenues		of Revenues
United States	$	13,983	47	%	$	7,710	33	%
China		4,038	14			6,747	29
Rest of the world		11,534	39			8,655	38
Total revenue	$	29,555	100	%	$	23,112	100	%

	Nine Months Ended September 30,
	2021				2020
			Percentage				Percentage
	Revenues		of Revenues		Revenues		of Revenues
United States	$	34,634	43	%	$	26,242	40	%
China		10,065	12			10,200	16
Japan		8,543	10			3,414	5
Taiwan		5,411	7			8,038	12
Rest of the world		22,521	28			17,784	27
Total revenue	$	81,174	100	%	$	65,678	100	%

Schedule of Disclosure on Geographic Areas, Long-Lived Assets in Individual Foreign Countries by Country [Table Text Block]

Long-lived assets, net by geographic area are as follows (in thousands):

	September 30,		December 31,
	2021		2020
United States	$	41,811	$	43,663
Rest of the world		1,624		2,251
Total long-lived assets, net	$	43,435	$	45,914

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Note 12 - FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2021

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

The following table represents the Company’s assets measured at fair value on a recurring basis as of September 30, 2021, and December 31, 2020, and the basis for those measurements (in thousands):

	Fair Value Measurements Using
			Quoted
			Prices in
			Active		Significant
			Markets for		Other
			Identical		Observable		Significant
	September 30,		Assets		Inputs		Unobservable
Assets	2021		(Level 1)		(Level 2)		Inputs (Level 3)
Cash equivalents
Money market mutual funds	$	55,039	$	55,039	$	—	$	—
Short-term investments (available-for-sale debt securities)
U.S. Treasury bills		69,992		69,992		—		—
Total	$	125,031	$	125,031	$	—	$	—

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
Assets	2020		(Level 1)		(Level 2)		(Level 3)
Cash equivalents
Money market mutual funds	$	18,012	$	18,012	$	—	$	—
Short-term investments (available-for-sale debt securities)
U.S. Treasury bills		114,981		114,981		—		—
Total	$	132,993	$	132,993	$	—	$	—

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Note 2 - REVENUE FROM CONTRACTS WITH CUSTOMERS - 1 (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($) item	Sep. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)
Number of Revenue Sources | item			2
Capitalized Contract Cost, Impairment Loss	$ 0	$ 0	$ 0	$ 0
Contract with Customer, Liability, Noncurrent	2,500,000		2,500,000		$ 1,200,000
Contract with Customer, Liability, Revenue Recognized	7,000,000.0	4,700,000	13,800,000	9,500,000
Revenue, Remaining Performance Obligation, Amount	180,900,000		180,900,000
Contract with Customer, Performance Obligation Satisfied in Previous Period	200,000	1,200,000	34,000	400,000
Capitalized Contract Cost, Amortization	200,000	$ 100,000	499,000	$ 367,000
Prepaid Expenses and Other Current Assets [Member]
Contract with Customer, Asset, after Allowance for Credit Loss, Current, Total					3,700,000
Capitalized Contract Cost, Net, Total	800,000		800,000		800,000
Other Noncurrent Assets [Member]
Capitalized Contract Cost, Net, Total	$ 1,800,000		$ 1,800,000		$ 900,000
Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Geographic Concentration Risk [Member] | Revenue Benchmark [Member] | Non-US [Member]
Concentration Risk, Percentage	53.00%	67.00%	57.00%	60.00%

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Note 2 - REVENUE FROM CONTRACTS WITH CUSTOMERS - 2 (Details) - Software License and Related Services Agreement [Member] - Advantest America, Inc. [Member]	Sep. 30, 2021
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Year)	2 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Year)	3 years

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Note 2 - REVENUE FROM CONTRACTS WITH CUSTOMERS - Disaggregation of Revenue (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Percent of revenues	100.00%	100.00%	100.00%	100.00%
Transferred over Time [Member]
Percent of revenues	72.00%	55.00%	60.00%	56.00%
Transferred at Point in Time [Member]
Percent of revenues	28.00%	45.00%	40.00%	44.00%

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Note 3 - STRATEGIC PARTNERSHIP AGREEMENT WITH ADVANTEST AND RELATED PARTY TRANSACTIONS (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
	Jul. 29, 2020	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Proceeds from Issuance of Common Stock					$ 64,995
Revenue from Contract with Customer, Including Assessed Tax		$ 29,555	$ 23,112	$ 81,174	65,678
Strategic Partnership for Joint Development and Sales Technology Solutions [Member]
Stock Issued During Period, Shares, New Issues (in shares)	3,306,924
Proceeds from Issuance of Common Stock	$ 65,200
Amendment #1 to Software License & Related Services Agreement [Member]
Revenue from Contract with Customer, Including Assessed Tax		2,700	$ 1,000	7,900	$ 1,000
Related Party Transaction, Due from (to) Related Party, Total		0		0		$ 0
Contract with Customer, Liability, Total		$ 9,600		$ 9,600		$ 0

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Note 4 - BUSINESS COMBINATION - Other (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended
	Dec. 31, 2020	Sep. 30, 2021	Mar. 31, 2021
Restricted Cash, Total		$ 3,019
Cimetrix Incorporated [Member]
Payments to Acquire Businesses, Net of Cash Acquired, Total	$ 28,600
Business Combination, Holdback Amount	3,500		$ 3,000
Goodwill, Period Increase (Decrease), Total			$ (500)
Business Combination, Estimated Cash Payout to Certain Employees	1,400
Business Combination, Estimated Remaining Cash Payout to Certain Employees		900
Business Combination, Acquisition Related Costs	1,600	0
Cimetrix Incorporated [Member] | Prepaid Expenses and Other Current Assets [Member]
Restricted Cash, Total	3,500	3,000
Cimetrix Incorporated [Member] | Accrued Compensation and Related Benefits [Member]
Business Combination, Accrued Estimated Cash Payout to Certain Employees	$ 300	$ 400

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Note 4 - BUSINESS COMBINATION - Fair Values of Assets Acquired and Liabilities Assumed and the Related Useful Lives (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Goodwill	$ 15,305	$ 15,774
Cimetrix Incorporated [Member]
Fair value of cash	5,900
Fair value of tangible assets (including cash of $5,900)	8,403
Goodwill	13,012
Total assets acquired	41,214
Accounts payable and accrued expenses	1,437
Deferred revenue	391
Operating lease liabilities	132
Deferred tax liabilities	1,743
Total liabilities assumed	3,703
Total purchase price allocation	37,511
Cimetrix Incorporated [Member] | In Process Research and Development [Member]
Fair value of indefinite-lived intangible assets	3,635
Developed Technology Rights [Member] | Cimetrix Incorporated [Member]
Fair value of finite-lived intangible assets	$ 12,541
Finite-lived intangible assets, amortization period (Year)	8 years
Customer Relationships [Member] | Cimetrix Incorporated [Member]
Fair value of finite-lived intangible assets	$ 1,967
Finite-lived intangible assets, amortization period (Year)	10 years
Noncompete Agreements [Member] | Cimetrix Incorporated [Member]
Fair value of finite-lived intangible assets	$ 848
Finite-lived intangible assets, amortization period (Year)	3 years
Trademarks and Trade Names [Member] | Cimetrix Incorporated [Member]
Fair value of finite-lived intangible assets	$ 808
Finite-lived intangible assets, amortization period (Year)	10 years

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Note 4 - BUSINESS COMBINATION - Fair Values of Assets Acquired and Liabilities Assumed and the Related Useful Lives - Narrative (Details) $ in Thousands	Sep. 30, 2021 USD ($)
Cimetrix Incorporated [Member]
Fair value of cash	$ 5,900

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Note 5 - BALANCE SHEET COMPONENTS - Other (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Unbilled Receivables, Current	$ 8.6		$ 8.6		$ 7.2
Unbilled Receivables, Not Expected to be Billed and Collected in Next Twelve Months	1.6		1.6		2.0
Depreciation, Depletion and Amortization, Nonproduction, Total	1.5	$ 1.7	4.8	$ 5.0
Impairment of goodwill	0.0		$ 0.0
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life (Year)			5 years 8 months 12 days
Amortization of Intangible Assets, Total	0.8	$ 0.3	$ 2.5	$ 1.0
DFI Test Equipment [Member]
Construction in Progress, Gross	$ 21.5		$ 21.5		$ 18.9

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Note 5 - BALANCE SHEET COMPONENTS - Property and Equipment (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Property and equipment, gross	$ 77,870	$ 75,537
Less: accumulated depreciation and amortization	(40,049)	(36,295)
Total	37,821	39,242
Computer Equipment [Member]
Property and equipment, gross	11,715	11,585
Software and Software Development Costs [Member]
Property and equipment, gross	5,433	5,451
Furniture and Fixtures [Member]
Property and equipment, gross	2,505	2,507
Leasehold Improvements [Member]
Property and equipment, gross	6,270	6,255
Laboratory and Test Equipment [Member]
Property and equipment, gross	3,650	3,451
Test Equipment [Member]
Property and equipment, gross	24,865	26,010
Construction in Progress [Member]
Property and equipment, gross	$ 23,432	$ 20,278

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Note 5 - BALANCE SHEET COMPONENTS - Change in Carrying Amount of Goodwill (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2021 USD ($)
Note 5 - Balance Sheet Components - Change in Carrying Amount of Goodwill (Details)
Balance at beginning of period	$ 15,774
Measurement period acquisition adjustment (1)	469
Balance at end of period	$ 15,305

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Note 5 - BALANCE SHEET COMPONENTS - Intangible Assets (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Amortization Period (Year)	5 years 8 months 12 days
Accumulated Amortization	$ (25,182)	$ (22,715)
Net Carrying Amount	18,471
Gross Carrying Amount, Total	47,288	47,288
Net Carrying Amount, Total	22,106	24,573
In Process Research and Development [Member]
In-process R&D	3,635	3,635
Customer Relationships [Member]
Gross Carrying Amount	9,407	9,407
Accumulated Amortization	(5,880)	(5,398)
Net Carrying Amount	$ 3,527	4,009
Customer Relationships [Member] | Minimum [Member]
Amortization Period (Year)	1 year
Customer Relationships [Member] | Maximum [Member]
Amortization Period (Year)	10 years
Developed Technology Rights [Member]
Gross Carrying Amount	$ 30,000	30,000
Accumulated Amortization	(16,652)	(14,987)
Net Carrying Amount	$ 13,348	15,013
Developed Technology Rights [Member] | Minimum [Member]
Amortization Period (Year)	4 years
Developed Technology Rights [Member] | Maximum [Member]
Amortization Period (Year)	9 years
Trademarks and Trade Names [Member]
Gross Carrying Amount	$ 1,598	1,598
Accumulated Amortization	(785)	(706)
Net Carrying Amount	$ 813	892
Trademarks and Trade Names [Member] | Minimum [Member]
Amortization Period (Year)	2 years
Trademarks and Trade Names [Member] | Maximum [Member]
Amortization Period (Year)	10 years
Patents [Member]
Gross Carrying Amount	$ 1,800	1,800
Accumulated Amortization	(1,630)	(1,600)
Net Carrying Amount	$ 170	200
Patents [Member] | Minimum [Member]
Amortization Period (Year)	7 years
Patents [Member] | Maximum [Member]
Amortization Period (Year)	10 years
Noncompete Agreements [Member]
Amortization Period (Year)	3 years
Gross Carrying Amount	$ 848	848
Accumulated Amortization	(235)	(24)
Net Carrying Amount	$ 613	$ 824

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Note 5 - BALANCE SHEET COMPONENTS - Annual Amortization of Identifiable Intangible Assets (Details) $ in Thousands	Sep. 30, 2021 USD ($)
Note 5 - Balance Sheet Components - Annual Amortization of Identifiable Intangible Assets (Details)
2021 (remaining three months)	$ 754
2022	3,013
2023	2,990
2024	2,592
2025	2,427
2026 and thereafter	6,695
Net Carrying Amount	$ 18,471

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Note 6 - LEASES - Other (Details) $ in Thousands	Sep. 30, 2021 USD ($) lease	Dec. 31, 2020 USD ($) lease
Note To Financial Statement Details Textual
Number of finance leases | lease	0	0
Operating Lease, Liability, Amount Related to Extension of Lease Term	$ 1,100
Operating Lease, Liability, Current	$ 1,740	$ 1,926

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Note 6 - LEASES - Lease Cost (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Note 6 - Leases - Lease Cost (Details)
Operating lease expense	$ 448	$ 455	$ 1,417	$ 1,362
Short-term lease and variable lease expense (1)	196	127	602	401
Total lease expense	$ 644	$ 582	$ 2,019	1,763
Weighted average remaining lease term under operating ROU leases (in years) (Year)	6 years		6 years		6 years 4 months 24 days
Weighted average discount rate for operating lease liabilities	5.25%		5.25%		5.24%
Operating lease ROU assets obtained (in thousands)				$ 151

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Note 6 - LEASES - Maturity of Operating Lease Liabilities (Details) $ in Thousands	Sep. 30, 2021 USD ($)
Note 6 - Leases - Maturity of Operating Lease Liabilities (Details)
2021 (remaining three months)	$ 477
2022	1,707
2023	1,389
2024	1,073
2025	1,088
2026 and thereafter	2,703
Total future minimum lease payments	8,437
Less: Interest (2)	(1,196)
Present value of future minimum lease payments under operating lease liabilities (3)	$ 7,241

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Note 7 - STOCKHOLDERS EQUITY (Details) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended	9 Months Ended		24 Months Ended
	Jul. 30, 2020	Jun. 04, 2020	Mar. 31, 2021	Sep. 30, 2021	Sep. 30, 2020	May 28, 2020
Proceeds from Issuance of Common Stock					$ 64,995
Treasury Stock, Value, Acquired, Cost Method			$ 4,523
The 2018 Stock Repurchase Program [Member]
Treasury Stock, Shares, Acquired (in shares)						786,000
Treasury Stock Acquired, Average Cost Per Share (in dollars per share)						$ 12.43
Treasury Stock, Value, Acquired, Cost Method						$ 9,800
The 2020 Stock Repurchase Program [Member]
Treasury Stock, Shares, Acquired (in shares)				251,212
Treasury Stock Acquired, Average Cost Per Share (in dollars per share)				$ 18.01
Treasury Stock, Value, Acquired, Cost Method				$ 4,500
Stock Repurchase Program, Authorized Amount		$ 25,000
Stock Repurchase Program, Period in Force (Year)		2 years
Strategic Partnership for Joint Development and Sales Technology Solutions [Member]
Stock Issued During Period, Shares, New Issues (in shares)	3,306,924
Shares Issued, Price Per Share (in dollars per share)	$ 19.7085
Proceeds from Issuance of Common Stock	$ 65,200
Payments of Stock Issuance Costs	$ 100

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Note 8 - EMPLOYEE BENEFIT PLANS - Other (Details) $ / shares in Units, $ in Thousands				1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Jun. 15, 2021	Nov. 16, 2011 shares	Jul. 31, 2001	Jul. 31, 2001 item	Sep. 30, 2021 USD ($) $ / shares shares	Sep. 30, 2020 USD ($) shares	Sep. 30, 2021 USD ($) $ / shares shares	Sep. 30, 2020 USD ($) $ / shares shares	Dec. 31, 2001 shares	Dec. 31, 2020 shares
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)							4 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period (in shares)							3,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares)					289,000		289,000			456,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)					0		0
Share-based Payment Arrangement, Amount Capitalized | $					$ 0	$ 0	$ 0	$ 190
Share Price (in dollars per share) | $ / shares					$ 23.04		$ 23.04
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value | $							$ 1,900
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value | $							100
Share-based Payment Arrangement, Option [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total | $					$ 200		$ 200
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)							2 years
Restricted Stock Units (RSUs) [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total | $					$ 27,100		$ 27,100
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)							2 years 8 months 12 days
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Maximum Employee Subscription Rate			10.00%	10.00%
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent			85.00%
Share-based Compensation Arrangement by Share-based Payment Award, Offering Period	24 months			24 months
Share-based Compensation Arrangement by Share-based Payment Award, Number of Purchase Period | item				4
Stock Issued During Period, Shares, Employee Stock Purchase Plans (in shares)					9,000	93,000	109,000	183,000
Employee Stock Purchase Plan Weighted Average Purchase Price of Shares Purchased (in dollars per share) | $ / shares							$ 9.53	$ 9.12
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total | $					$ 2,000		$ 2,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)							1 year 9 months
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)	10 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)				6 months
Twenty Eleven Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)		11,500,000
Share Based Compensation Arrangement By Share Based Payment Award Shares Reserved Decrease Rate (in shares)		1.33
Common Stock, Capital Shares Reserved for Future Issuance (in shares)					12,100,000		12,100,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)					3,400,000		3,400,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period (in shares)							500,000
Twenty Eleven Stock Incentive Plan [Member] | Share-based Payment Arrangement, Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)		10 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)		4 years
Shares Previously Issued Under the 2001 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)									3,500,000
IDS Plan [Member] | Share-based Payment Arrangement, Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period (Year)									10 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Year)									4 years
Outside of the 2011, 2001 or IDS Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance (in shares)					0		0

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Note 8 - EMPLOYEE BENEFIT PLANS - Stock Options, Valuation Assumptions (Details) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Employee Stock Purchase Plan [Member]
Expected life (in years) (Year)	1 year 3 months		1 year 3 months	1 year 3 months
Volatility	48.00%		34.25%	34.25%
Risk-free interest rate	0.11%		1.43%	1.43%
Expected dividend	0.00%		0.00%	0.00%
Weighted average fair value of purchase rights granted during the period (in dollars per share)	$ 6.71		$ 4.83	$ 4.83
Twenty Eleven Stock Incentive Plan [Member]
Expected life (in years) (Year)		4 years 5 months 12 days		4 years 5 months 12 days
Volatility		43.92%		40.90%
Risk-free interest rate		0.23%		0.60%
Expected dividend		0.00%		0.00%
Weighted average fair value of purchase rights granted during the period (in dollars per share)		$ 6.92		$ 5.75

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Note 8 - EMPLOYEE BENEFIT PLANS - Allocation of Recognized Period Costs (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Stock-based compensation expenses	$ 3,363	$ 3,130	$ 9,474	$ 9,476
Cost of Sales [Member]
Stock-based compensation expenses	670	790	1,860	2,582
Research and Development Expense [Member]
Stock-based compensation expenses	1,299	1,148	4,013	3,613
Selling, General and Administrative Expenses [Member]
Stock-based compensation expenses	$ 1,394	$ 1,192	$ 3,601	$ 3,281

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Note 8 - EMPLOYEE BENEFIT PLANS - Stock Options Activity (Details) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2021 USD ($) $ / shares shares	Sep. 30, 2021 USD ($) $ / shares shares
Note 8 - Employee Benefit Plans - Stock Options Activity (Details)
Outstanding, beginning balance (in shares)		456
Granted (in shares)	0	0
Exercised (in shares)		(160)
Canceled (in shares)		(3)
Expired (in shares)		(4)
Outstanding, ending balance (in shares)	289	289
Vested and expected to vest (in shares)	286	286
Exercisable (in shares)	240	240
Outstanding, weighted average exercise price, beginning balance (in dollars per share) | $ / shares		$ 10.95
Exercised, weighted average exercise price (in dollars per share) | $ / shares		7.80
Canceled, weighted average exercise price (in dollars per share) | $ / shares		13.52
Expired, weighted average exercise price (in dollars per share) | $ / shares		6.90
Outstanding, weighted average exercise price, ending balance (in dollars per share) | $ / shares	$ 12.72	12.72
Vested and expected to vest, weighted average exercise price (in dollars per share) | $ / shares	12.69	12.69
Exercisable, weighted average exercise price (in dollars per share) | $ / shares	$ 12.27	$ 12.27
Outstanding, weighted average remaining contractual (Year)		3 years 3 months 18 days
Vested and expected to vest, weighted average remaining contractual term (Year)		3 years 3 months
Exercisable, weighted average remaining contractual term (Year)		2 years 5 months 4 days
Outstanding, aggregate intrinsic value | $	$ 2,983	$ 2,983
Vested and expected to vest, aggregate intrinsic value | $	2,956	2,956
Exercisable, aggregate intrinsic value | $	$ 2,590	$ 2,590

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Note 8 - EMPLOYEE BENEFIT PLANS - Nonvested Restricted Stock Units Activity (Details) - Restricted Stock Units (RSUs) [Member] shares in Thousands	9 Months Ended
	Sep. 30, 2021 $ / shares shares
Nonvested, Balance (in shares) | shares	1,747
Granted (in shares) | shares	894
Vested (in shares) | shares	(579)
Forfeited (in shares) | shares	(81)
Nonvested, Balance (in shares) | shares	1,981
Nonvested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 16.33
Granted, weighted average grant date fair value (in dollars per share) | $ / shares	18.42
Vested, weighted average grant date fair value (in dollars per share) | $ / shares	16.08
Forfeited, weighted average grant date fair value (in dollars per share) | $ / shares	16.85
Nonvested, weighted average grant date fair value (in dollars per share) | $ / shares	$ 17.33

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Note 9 - INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Note To Financial Statement Details Textual
Increase (Decrease) in Income Taxes			$ 5,700
Income Tax Expense (Benefit), Total	$ 506	$ (930)	$ 1,549	$ (4,109)
Effective Income Tax Rate Reconciliation, Percent, Total			12.00%	(37.00%)
Unrecognized Tax Benefits, Ending Balance	14,700		$ 14,700		$ 14,300
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	1,900		1,900		2,200
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued, Total	2,500		2,500
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued in Long Term Liabilities	700		700
Unrecognized Tax Benefits In Deferred Tax Assets	12,800		12,800
Deferred Tax Assets, Valuation Allowance, Total	41,900		41,900		41,900
Net deferred tax assets	$ 174		$ 174		$ 249

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Note 10 - NET LOSS PER SHARE - Calculation of Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Note 10 - Net Loss Per Share - Calculation of Earnings Per Share (Details)
Net loss	$ (2,407)	$ (2,734)	$ (14,488)	$ (6,914)
Basic weighted-average shares outstanding (in shares)	37,221	35,479	37,067	33,696
Diluted weighted-average shares outstanding (in shares)	37,221	35,479	37,067	33,696
Basic (in dollars per share)	$ (0.06)	$ (0.08)	$ (0.39)	$ (0.21)
Diluted (in dollars per share)	$ (0.06)	$ (0.08)	$ (0.39)	$ (0.21)

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Note 10 - NET LOSS PER SHARE - Anti-dilutive Securities (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Anti-dilutive securities (in shares)	1,073	1,584	1,193	1,328
Share-based Payment Arrangement, Option [Member]
Anti-dilutive securities (in shares)	128	310	182	362
Restricted Stock Units (RSUs) [Member]
Anti-dilutive securities (in shares)	915	1,084	997	820
Employee Stock Purchase Plan [Member]
Anti-dilutive securities (in shares)	30	190	14	146

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Note 11 - CUSTOMER AND GEOGRAPHIC INFORMATION - Other (Details)	9 Months Ended
	Sep. 30, 2021
Note To Financial Statement Details Textual
Number of Operating Segments	1
Number of Reportable Segments	1

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Note 11 - CUSTOMER AND GEOGRAPHIC INFORMATION - Revenue Percentage by Major Customers (Details) - Customer Concentration Risk [Member]	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Revenue Benchmark [Member] | Customer A [Member]
Concentration risk		18.00%		23.00%
Revenue Benchmark [Member] | Customer B [Member]
Concentration risk		14.00%
Revenue Benchmark [Member] | Customer D [Member]
Concentration risk	25.00%		12.00%
Revenue Benchmark [Member] | Customer E [Member]
Concentration risk			10.00%
Accounts Receivable [Member] | Customer A [Member]
Concentration risk					16.00%
Accounts Receivable [Member] | Customer B [Member]
Concentration risk			13.00%
Accounts Receivable [Member] | Customer C [Member]
Concentration risk			10.00%		11.00%
Accounts Receivable [Member] | Customer D [Member]
Concentration risk			25.00%

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Note 11 - CUSTOMER AND GEOGRAPHIC INFORMATION - Revenues by Geographic Area (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Revenues	$ 29,555	$ 23,112	$ 81,174	$ 65,678
Geographic Concentration Risk [Member] | Revenue Benchmark [Member]
Revenues	$ 29,555	$ 23,112	$ 81,174	$ 65,678
Concentration risk	100.00%	100.00%	100.00%	100.00%
Geographic Concentration Risk [Member] | Revenue Benchmark [Member] | UNITED STATES
Revenues	$ 13,983	$ 7,710	$ 34,634	$ 26,242
Concentration risk	47.00%	33.00%	43.00%	40.00%
Geographic Concentration Risk [Member] | Revenue Benchmark [Member] | CHINA
Revenues	$ 4,038	$ 6,747	$ 10,065	$ 10,200
Concentration risk	14.00%	29.00%	12.00%	16.00%
Geographic Concentration Risk [Member] | Revenue Benchmark [Member] | JAPAN
Revenues			$ 8,543	$ 3,414
Concentration risk			10.00%	5.00%
Geographic Concentration Risk [Member] | Revenue Benchmark [Member] | TAIWAN, PROVINCE OF CHINA
Revenues			$ 5,411	$ 8,038
Concentration risk			7.00%	12.00%
Geographic Concentration Risk [Member] | Revenue Benchmark [Member] | Rest of the World [Member]
Revenues	$ 11,534	$ 8,655	$ 22,521	$ 17,784
Concentration risk	39.00%	38.00%	28.00%	27.00%

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Note 11 - CUSTOMER AND GEOGRAPHIC INFORMATION - Long-lived Assets by Geographic Area (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Long-lived assets, net	$ 43,435	$ 45,914
UNITED STATES
Long-lived assets, net	41,811	43,663
Rest of the World [Member]
Long-lived assets, net	$ 1,624	$ 2,251

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Note 12 - FAIR VALUE MEASUREMENTS - Other (Details) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021 USD ($) DerivativeInstrument	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($) DerivativeInstrument	Sep. 30, 2020 USD ($)
Foreign Exchange Contract [Member] | Other Nonoperating Income (Expense) [Member]
Derivative, Gain (Loss) on Derivative, Net, Total | $	$ 0.0	$ 0.0	$ 0.0	$ 0.2
Forward Contracts [Member]
Derivative, Number of Instruments Held | DerivativeInstrument	0		0

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Note 12 - FAIR VALUE MEASUREMENTS - Fair Value, Assets Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Total	$ 125,031	$ 132,993
Fair Value, Inputs, Level 1 [Member]
Total	125,031	132,993
Money Market Funds [Member]
Money market mutual funds	55,039	18,012
Money Market Funds [Member] | Fair Value, Inputs, Level 1 [Member]
Money market mutual funds	55,039	18,012
US Treasury Securities [Member]
U.S. Treasury bills	69,992	114,981
US Treasury Securities [Member] | Fair Value, Inputs, Level 1 [Member]
U.S. Treasury bills	$ 69,992	$ 114,981

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Note 13 - COMMITMENTS AND CONTINGENCIES (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2021 USD ($)
Note To Financial Statement Details Textual
Term of Product Warranty	90 days
Purchase Obligation, Total	$ 11,300
Threshold payment period	24 months
Accrued amount	$ 0