PDF Solutions, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited results; amounts below are in U.S. dollars.
Business context
PDF Solutions provides software, analytics, hardware and services to the semiconductor and electronics industries. Revenue comes from Analytics and Integrated Yield Ramp (IYR). The December 2020 Cimetrix acquisition contributed connectivity products to Analytics; the company also has a strategic partnership with Advantest.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $27.4m | $21.4m | $51.6m | $42.6m |
| Analytics revenue | $19.6m | $15.2m | $39.0m | $28.4m |
| IYR revenue | $7.8m | $6.2m | $12.6m | $14.1m |
| Gross profit / margin | $16.6m / 61% | $12.5m / 58% | $30.2m / 58% | $25.1m / 59% |
| Net loss | $4.5m | $3.7m | $12.1m | $4.2m |
| Basic and diluted loss per share | $0.12 | $0.11 | $0.33 | $0.13 |
For the six-month period, operating expenses included research and development of $21.9m (up 34%) and selling, general and administrative expense of $18.9m (up 21%). The filing does not present a clear standalone operating income figure in the supplied text.
- Cash flow: Operating activities used $0.2m in the first half of 2021, compared with $10.6m provided in the prior-year period. Investing activities provided $61.9m, primarily reflecting maturities of short-term investments, net of purchases. Financing activities used $5.2m, including $4.5m of share repurchases.
- Liquidity: Cash, cash equivalents and short-term investments totaled $139.2m at June 30, 2021, versus $145.3m at December 31, 2020. Working capital was $141.9m, down from $151.2m. Management said existing resources and anticipated operating funds should cover requirements for at least 12 months.
- Debt and obligations: The company reported no debt or undisclosed borrowings. Operating lease liabilities totaled $7.6m; purchase obligations were $11.2m, mostly due within 24 months.
Changes versus comparable periods
- Q2 revenue rose 28%; first-half revenue rose 21%. Growth was led by Analytics, chiefly higher Cimetrix connectivity product and Exensio license demand. Management cited $9.0m of related growth in Q2 and $17.2m in the first half, partly offset by lower CV and DFI systems revenue.
- IYR revenue rose 26% in Q2, mainly from more hours on fixed-fee engagements, but fell 11% for the first half as fixed-fee hours and Gainshare royalties declined.
- Gross margin improved three percentage points in Q2 but fell one percentage point for the first half. Higher first-half costs and lower IYR/Gainshare revenue weighed on the period.
- First-half net loss widened to $12.1m from $4.2m. Higher acquisition-related headcount, R&D and other operating costs contributed; the prior-year period also benefited from a tax benefit under the CARES Act.
Outlook, risks and unusual items
- No specific numerical revenue or earnings guidance is provided. Remaining performance obligations were approximately $138.6m at June 30; management expected most to be recognized over the next two years, subject to contract changes and other factors.
- Management expects R&D and SG&A spending to fluctuate. It described Analytics opportunities from cloud computing and manufacturing analytics, while noting that IYR revenue and Gainshare depend on customer production, yield results and contract activity.
- COVID-19 travel restrictions may limit customer access and sales of complex or new technologies. The filing also cites U.S.-China trade and export-control tensions as potential risks to China sales and international business.
- Customer concentration is notable: one customer accounted for 15% of Q2 revenue and 14% of first-half revenue. The filing also identifies multiple customers exceeding 10% of receivables.
- The company initiated arbitration against SMIC over unpaid contractual fees; the proceeding remained ongoing. No material legal loss was accrued at June 30.
- A full valuation allowance against U.S. deferred tax assets contributed to the tax provision; the allowance was approximately $41.9m. Unrecognized tax benefits were $14.6m, excluding interest and penalties.
- Cimetrix purchase-price allocation remained preliminary. The company expected to pay an adjusted $3.0m acquisition holdback in December 2021. Q2 revenue from Advantest was $2.6m; first-half revenue was $5.2m.
Important facts for investors to verify
- Whether Analytics growth persists and offsets continued weakness or variability in CV/DFI systems and IYR Gainshare revenue.
- Whether operating cash flow improves after turning slightly negative in the first half, and how cash and investments are deployed.
- The trend in research, development and acquisition-related costs relative to revenue growth and gross margin.
- Developments in the SMIC arbitration, customer concentration, export restrictions and COVID-related operating or sales constraints.
- Recognition timing and variability of the $138.6m remaining performance obligations, and the assumptions underlying deferred tax assets and the valuation allowance.