PDF Solutions, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. PDF Solutions provides semiconductor-industry analytics software and services, including Analytics and Integrated Yield Ramp (IYR) offerings. Financial amounts below are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $23.1 | $21.9 | $65.7 | $63.0 |
| Analytics revenue | $14.3 | $12.7 | $42.8 | $36.1 |
| IYR revenue | $8.8 | $9.2 | $22.9 | $26.9 |
| Gross margin | 59% | 60% | 59% | 61% |
| Net loss | $(2.7) | $(0.7) | $(6.9) | $(4.1) |
| Diluted loss per share | $(0.08) | $(0.02) | $(0.21) | $(0.13) |
- Q3 operating expenses included R&D of $8.3 million and SG&A of $8.4 million; SG&A rose 41% year over year, including higher legal, personnel, subcontractor, and accounting costs.
- For the first nine months, operating cash flow was $10.9 million, down from $23.0 million. Investing cash flow was $(55.3) million, including $50.0 million of Treasury-bill purchases and spending on property and equipment. Financing cash flow was $65.2 million, primarily from the Advantest share issuance.
- At September 30, cash and cash equivalents were $118.4 million and short-term investments were $50.0 million, compared with $97.6 million of cash and no short-term investments at December 31, 2019. Working capital was $185.2 million. The company reported no debt and said existing resources and anticipated operating funds should cover requirements for at least 12 months.
- Total assets were $310.6 million and total liabilities were $45.8 million. Current liabilities included $19.1 million of deferred revenue. Operating lease liabilities totaled $8.5 million; purchase obligations were $15.1 million, mostly due within 15 months.
Material changes and business developments
- Q3 revenue increased 5% year over year: Analytics rose 13%, while IYR fell 5%. Analytics growth primarily reflected higher Exensio license and Characterization Vehicle services activity; lower DFI revenue partly offset it. IYR weakness reflected lower Gainshare royalties from 14nm and 28nm nodes.
- Nine-month revenue rose 4%, as 18% Analytics growth more than offset a 15% decline in IYR. The prior-year period included $3.3 million of nonrecurring revenue from a customer contract amendment. Gross margin fell two percentage points for the nine months, partly reflecting that prior-year item.
- On July 30, the company issued Advantest 3.31 million shares at $19.7085 per share for $65.2 million gross proceeds, approximately $65.0 million net. This increased shares outstanding and funded the marked rise in cash and investments.
- The partnership includes a five-year Exensio cloud subscription and related services worth more than $50 million over the initial term, subject to milestones and contractual terms; development and commercialization agreements also cover joint products. Q3 revenue recognized under the Advantest agreement was $1.0 million. At quarter-end, receivables from Advantest were $9.0 million and deferred revenue was $8.0 million.
Outlook, risks, and unusual items
- The filing provides no specific quarterly or annual revenue or earnings guidance. Management expects R&D and SG&A to fluctuate with development timing, cost controls, and selling efforts.
- Management said COVID-19 had not significantly affected liquidity to date, and that remote-work infrastructure had enabled continued product and service access. However, travel limits and office closures constrained on-site service delivery; effects on productivity, customer demand, bookings, and future financial performance remained uncertain.
- Management described continued opportunities in cloud analytics and semiconductor data analysis, but noted that changes in leading-edge foundry investment could continue to weigh on IYR. IYR royalties depend on customer production, yield results, and other factors outside the company’s control.
- The company initiated arbitration against SMIC in May 2020 over unpaid fees, seeking payment, future contractual fees, and costs. No loss was considered probable or accrued at September 30; the outcome and recoverability are not stated.
- Other notable items include a $2.2 million tax benefit from carrying back federal net operating losses under the CARES Act; $14.1 million of unrecognized tax benefits; and customer concentration, with one customer representing 18% of Q3 revenue and another 15%.
- The company had a $25 million stock repurchase authorization but made no repurchases under its programs in the first nine months of 2020. Disclosure controls were assessed as effective, with no material changes in internal control reported.
Key facts for investors to verify
- Whether Analytics growth and the Advantest subscription translate into recurring revenue and cash collections, and how the partnership’s milestone conditions affect the stated contract value.
- Whether IYR revenue and Gainshare royalties stabilize, given lower year-over-year IYR revenue and reliance on customer production and yield performance.
- Drivers of the worsening net loss and lower operating cash flow, including elevated SG&A, deferred-tax movements, and working-capital timing.
- Status and potential financial impact of the SMIC arbitration, the company’s unrecognized tax positions, and its $15.1 million of purchase obligations.
- How COVID-19, customer concentration, and international exposure affect service delivery, bookings, and collections. The filing does not provide a quantified outlook for these factors.