PDF Solutions, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter ended September 30, 2021; comparisons are with the same 2020 periods unless noted. Financial amounts below are in millions of dollars except per-share data. PDF Solutions provides software, analytics, equipment and services to the semiconductor and electronics industries. Revenue is reported as Analytics and Integrated Yield Ramp (IYR). The December 2020 Cimetrix acquisition contributed to 2021 results.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Analytics revenue | $27.2 | $14.3 | $66.2 | $42.8 |
| IYR revenue | $2.4 | $8.8 | $15.0 | $22.9 |
| Total revenue | $29.6 | $23.1 | $81.2 | $65.7 |
| Gross profit / margin | $18.5 / 63% | $13.6 / 59% | $48.7 / 60% | $38.8 / 59% |
| Net loss | $(2.4) | $(2.7) | $(14.5) | $(6.9) |
| Net loss per share, diluted | $(0.06) | $(0.08) | $(0.39) | $(0.21) |
- Q3 revenue rose 28%; nine-month revenue rose 24%. Analytics grew 90% in Q3 and 55% year to date, mainly from stronger Cimetrix and Exensio software-license demand. Q3 IYR revenue fell 73% and nine-month IYR revenue fell 34%, reflecting ended Gainshare periods and fewer hours on fixed-fee engagements.
- Gross margin improved in both comparisons as higher Analytics revenue more than offset higher delivery costs. Research and development and selling, general and administrative expenses rose 28% and 14%, respectively, in Q3; year-to-date they rose 32% and 18%.
- Operating cash flow was $3.8 million for the first nine months, down from $10.9 million. Capital expenditures were $2.7 million. Net investing cash inflow of $42.3 million primarily reflected maturities of short-term investments, not operating performance.
- At September 30, cash and cash equivalents were $71.2 million and short-term investments were $70.0 million, totaling $141.2 million. Working capital was $144.1 million. Total assets were $275.2 million and stockholders’ equity was $223.5 million. The company reported no debt or off-balance-sheet borrowings; operating lease liabilities totaled $7.2 million.
- Management said existing cash resources and anticipated operating funds should meet operating, capital-expenditure and other obligations for at least 12 months. Cash and short-term investments declined $4.1 million from year-end 2020.
Material changes and management commentary
- Quarterly net loss narrowed modestly, but the nine-month net loss more than doubled year over year, principally amid higher operating expenses, acquisition-related costs and income-tax expense. The 2020 comparison included a CARES Act tax benefit; the company also maintained a full valuation allowance on U.S. federal and state deferred tax assets.
- Analytics represented 92% of Q3 revenue, versus 62% a year earlier. IYR revenue remains variable because Gainshare depends on customers’ production, yield performance and contract terms.
- Management described demand for manufacturing analytics, Industry 4.0 and secure cloud solutions as potential opportunities. It also noted that semiconductor supply shortages could reduce production-linked Gainshare and Cimetrix run-time license revenue. U.S.–China tensions and changing export restrictions could disrupt sales or customer purchasing, particularly in China. COVID-19-related travel restrictions continued to constrain some in-person customer engagement.
- Remaining performance obligations were approximately $180.9 million; most were expected to be recognized over the next two years, subject to contract changes and other stated exclusions. The filing provides no specific numerical revenue or earnings guidance.
Contingencies, related matters and risks
- The company’s arbitration against SMIC over unpaid contractual fees remained ongoing. No material legal proceeding with a probable, estimable loss was accrued. The filing does not provide a clear estimate of potential recovery or loss from the arbitration.
- Purchase obligations were $11.3 million, mostly due within 24 months. The company also expected to pay approximately $3.0 million of Cimetrix acquisition holdback in December 2021.
- Advantest, a strategic partner and shareholder, generated $2.7 million of Q3 Analytics revenue and $7.9 million for the nine months. Deferred revenue due from Advantest was $9.6 million at September 30; the company reported no related accounts receivable.
- Customer concentration is notable: customer D contributed 25% of Q3 revenue and represented 25% of gross accounts receivable at period-end. Management reported no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether Analytics growth, especially software-license demand, continues and translates into sustained cash generation.
- How quickly IYR revenue declines stabilize, and the sensitivity of Gainshare to customer production, yields and contract expirations.
- The extent of Cimetrix’s ongoing contribution, integration costs and acquisition-related amortization.
- Customer and related-party concentration, including customer D exposure and Advantest deferred revenue and partnership terms.
- Developments in the SMIC arbitration, U.S.–China export restrictions, semiconductor supply conditions and the company’s deferred-tax valuation allowance.