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Exhibit 99.2

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Q2 2021

Management Report

August 10, 2021

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Contents

Q2 2021 Results

–  Overview

–  Key Financial & Operating Metrics

–  Revenue by Geographic Area

Q2 2021 Non-GAAP Results

–  Reconciliation of GAAP to Non-GAAP Net Income (Loss)

–  Reconciliation of GAAP to Non-GAAP Spending by Function

Related Information

The following commentary is provided by management and should be referenced in conjunction with PDF Solutions’ second quarter of 2021 financial results press release available on its Investor Relations website at http://www.pdf.com/financial-news. These remarks represent management’s current views of the Company’s financial and operational performance and are provided to give investors and analysts further insight into its performance in advance of the earnings call webcast. The Company disclaims any duty to update this information for future events.

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PDF Solutions Reports Second Quarter 2021 Results

Q2 2021 Key Metrics

financial results Summary

Revenue: $27.4M

GAAP Gross Margin: 61%

    Q2 2021 Total revenues of $27.4M, up 13% over Q1 2021, and up 28% over Q2 2020.

    Q2 2021 Analytics revenue of $19.6M, up 1% over Q1 2021, and up 29% over Q2 2020.

    Q2 2021 Integrated yield ramp revenue of $7.8M, up 63% over Q1 2021 and up 26% over Q2 2020.

Non-GAAP Gross Margin: 65%

GAAP EPS: ($0.12)

Non-GAAP EPS: ($0.01)

Operating Cash Flow: $8.1M

Capital Expenditures: $0.5M

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Key Financial & Operating Metrics – Quarterly

(in thousands, except share data, which is in millions, and percentages)

  

Q2’21

  

  

Q1’21

  

  

Q4’20

  

  

Q3’20

  

  

Revenues

$ 27,419

$ 24,200

$ 22,367

$ 23,112

GAAP Gross Margin

61%

56%

56%

59%

Non-GAAP Gross Margin

65%

61%

61%

63%

Outstanding Debt

$0

 

$0

$0

$0

Operating Cash Flow

$ 8,130

 

($ 8,325)

 

$ 10,908

$ 245

Capital Expenditures (CAPEX)

$ 535

 

$ 586

 

$ 1,603

$ 1,425

$ Shares Repurchased

$ 0

 

$ 4,523

 

$ 0

$ 0

Weighted Average Common Shares Outstanding

37.0

 

37.0

 

36.7

35.5

Effective Tax Rate Benefit (Expense)

(2)%

 

(14)%

 

(375)%

25%

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Key Financial & Operating Metrics – Year to Date

(in thousands, except share data, which is in millions, and percentages)

  

Six Months Ended June 30, 

2021

2020

2019

Revenues

 

$ 51,619

 

$ 42,567

 

$ 41,109

GAAP Gross Margin

 

58%

59%

62%

Non-GAAP Gross Margin

 

63%

64%

67%

Outstanding Debt

 

0%

 

0%

0%

Operating Cash Flow

 

($195)

 

$10,630

 

$4,966

Capital Expenditures (CAPEX)

 

$ 1,121

 

$ 3,940

 

$ 4,054

$ Shares Repurchased

 

$ 4,523

 

$ -

 

$ 7,706

Weighted Average Common Shares Outstanding

 

37.0

 

32.8

 

32.4

Effective Tax Rate Benefit (Expense)

 

(9)%

 

43%

 

22%

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Revenue by Geographic Area – Quarterly

(Dollars in thousands)

  

Q2’21

  

  

Q1’21

  

  

Q4’20

  

  

Q3’20

  

  

Q2’20

North America

 

$ 12,211

 

$ 8,608

 

$ 10,525

$ 7,754

 

$ 9,969

% of Total

 

45%

35%

47%

34%

46%

Europe

 

$ 3,958

$ 4,331

$ 3,602

$ 3,581

$ 3,983

% of Total

 

14%

 

18%

16%

15%

19%

APAC

 

$ 11,250

 

$ 11,261

 

$ 8,240

$ 11,777

$ 7,457

% of Total

 

41%

 

47%

 

37%

51%

35%

Total revenues

 

$ 27,419

 

$ 24,200

 

$ 22,367

$ 23,112

$ 21,409

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Revenue by Geographic Area – Year to Date

(Dollars in thousands)

Six Months Ended June 30, 

  

2021

2020

2019

North America

 

$ 20,819

 

$ 18,656

 

$ 17,996

% of Total

 

40%

44%

44%

Europe

 

$ 8,289

$ 7,544

$ 6,745

% of Total

 

16%

 

18%

16%

APAC

 

$ 22,511

 

$ 16,367

 

$ 16,368

% of Total

 

44%

 

38%

 

40%

Total revenues

 

$ 51,619

 

$ 42,567

 

$ 41,109

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GAAP / Non-GAAP Presentation

In addition to providing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), the Company also provides certain non-GAAP financial measures. Non-GAAP gross margin excludes stock-based compensation expense and the amortization of acquired technology. Non-GAAP net income (loss) exclude the effects of non-recurring items (including expenses related to an arbitration proceeding for a disputed customer contract), acquisition-related costs, write-down in value of property and equipment, stock-based compensation expenses, amortization of acquired technology and other acquired intangible assets, and their related income tax effects, as applicable, as well as adjustments for the non-cash portion of income taxes, tax impact of the CARES Act and valuation allowance for deferred tax assets. These non-GAAP financial measures are used by management internally to measure the Company’s profitability and performance. PDF Solutions’ management believes that these non-GAAP measures provide useful supplemental measures to investors regarding the Company’s ongoing operations in light of the fact that none of these categories of expense has a current effect on the future uses of cash (with the exception of certain non-recurring items and acquisition-related costs) nor do they impact the generation of current or future revenues. These non-GAAP results should not be considered an alternative to, or a substitute for, GAAP financial information, and may be different from similarly titled non-GAAP measures used by other companies. In particular, these non-GAAP financial measures are not a substitute for GAAP measures of income or loss as a measure of performance, or to cash flows from operating, investing and financing activities as a measure of liquidity. Management uses these non-GAAP financial measures internally to measure profitability and performance; these non-GAAP measures are presented here to give investors an opportunity to see the Company’s financial results as viewed by management. A detailed reconciliation of the adjustments made to comparable GAAP measures is included herein.

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Reconciliation of GAAP to Non-GAAP Net (Loss) Income

Quarterly

(in thousands, except for shares and per share amounts)

  

Q2’21

  

  

Q1’21

  

  

Q4’20

  

  

Q3’20

  

GAAP net loss

 

($ 4,484)

 

($ 7,597)

 

($ 33,449)

($ 2,734)

Adjustments to reconcile GAAP net loss to non-GAAP net (loss) income:

 

Stock-based compensation expense

 

2,742

3,369

2,987

3,130

Amortization of acquired technology

 

536

 

535

274

144

Amortization of other acquired intangible assets

 

314

 

314

 

220

174

Expenses of arbitration (1)

 

558

 

295

 

268

366

Acquisition-related costs (2)

752

Write-down in value of property and equipment

179

Tax impact of reconciling items (3)

1,931

(955)

Tax impact of the CARES Act (4)

1,099

Tax impact of valuation allowance for deferred tax assets (5)

52

1,166

24,471

Non-GAAP net (loss) income

($ 282)

($ 1,918)

($ 1,268)

$ 125

GAAP net (loss) income per diluted share

($ 0.12)

($ 0.21)

($ 0.91)

($ 0.08)

Non-GAAP net (loss) income per diluted share

($ 0.01)

($ 0.05)

($ 0.03)

$ -

Shares used in net (loss) income per diluted shares calculation

 

37,004

 

36,974

 

36,727

36,661


(1)Represents the expenses related to an arbitration proceeding over a disputed customer contract, which expenses are expected to continue until the arbitration is resolved.
(2)Represents transaction expenses related to the acquisition of Cimetrix Incorporated in the fourth quarter of 2020.
(3)Tax impact of reconciling items for the fourth quarter of 2020 pertains to the reversal of prior quarters’ tax impact due to a full valuation allowance recognized against the U.S. deferred tax assets (DTA) on a GAAP basis. The above reconciling items do not have any tax expense or benefit on a GAAP basis for the year ended December 31, 2020 due to the full valuation allowance offsetting any tax impact from reconciling items.
(4)The Company recognized a discrete tax benefit recognized from the carryback of net operating losses (NOLs) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020. Due to the full valuation allowance against U.S. DTA recognized in the fourth quarter of 2020, there is no tax benefit from the released tax attributes. The Company does not have any NOLs on a non-GAAP basis and, therefore, it did not recognize this discrete tax benefit in calculating its non-GAAP tax expense and net income (loss).
(5)The Company's GAAP tax expense is higher year-to-date compared to the non-GAAP tax expense, primarily due to the GAAP full U.S. federal and state valuation allowances. The Company's non-GAAP tax rate and resulting non-GAAP tax expense is not calculated with a full US federal or state valuation allowance due to recent cumulative profit on a non-GAAP basis. Each reporting period, management evaluates the need for a valuation allowance and may place a valuation allowance against its US net deferred tax assets (DTA) on a non-GAAP basis if it concludes it is more likely than not that it will not be able to utilize some or all of its US DTAs on a non-GAAP basis.

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Reconciliation of GAAP to Non-GAAP Net (Loss) Income

Year to Date

(in thousands, except for shares and per share amounts)

Six Months Ended June 30, 

  

2021

  

  

2020

  

  

2019

GAAP net loss

 

($ 12,081)

 

($ 4,180)

 

($ 3,401)

Adjustments to reconcile GAAP net loss to non-GAAP net loss:

 

Stock-based compensation expense

 

6,111

6,346

5,910

Amortization of acquired technology

 

1,071

 

287

 

287

Amortization of other acquired intangible assets

 

628

 

347

 

262

Expenses of arbitration (1)

 

853

 

464

 

Write-down in value of property and equipment

311

Restructuring charges and severance payment

92

Tax impact of reconciling items

(976)

(1,280)

Tax impact of the CARES Act (2)

(2,261)

Tax impact of valuation allowance for deferred tax assets (3)

1,218

Non-GAAP net (loss) income

(2,200)

338

1,870

GAAP net loss per diluted share

($ 0.33)

($ 0.13)

($ 0.10)

Non-GAAP net (loss) income per diluted share

($ 0.06)

$ 0.01

$ 0.06

Shares used in diluted shares calculation

 

36,989

 

33,718

 

32,795


(1)Represents the expenses related to an arbitration proceeding over a disputed customer contract, which expenses are expected to continue until the arbitration is resolved. resents transaction expenses related to the acquisition of Cimetrix Incorporated in the fourth quarter of 2020.
(2)The Company recognized a discrete tax benefit recognized from the carryback of net operating losses (NOLs) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020. Due to the full valuation allowance against U.S. DTA recognized in the fourth quarter of 2020, there is no tax benefit from the released tax attributes. The Company does not have any NOLs on a non-GAAP basis and, therefore, it did not recognize this discrete tax benefit in calculating its non-GAAP tax expense and net income (loss).
(3)The Company's GAAP tax expense is higher year-to-date compared to the non-GAAP tax expense, primarily due to the GAAP full U.S. federal and state valuation allowances. The Company's non-GAAP tax rate and resulting non-GAAP tax expense is not calculated with a full US federal or state valuation allowance due to recent cumulative profit on a non-GAAP basis. Each reporting period, management evaluates the need for a valuation allowance and may place a valuation allowance against its US net deferred tax assets (DTA) on a non-GAAP basis if it concludes it is more likely than not that it will not be able to utilize some or all of its US DTAs on a non-GAAP basis.

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Reconciliation of GAAP to Non-GAAP Spending by Function

Quarterly

(in thousands)

  

Q2’21

  

  

Q1’21

  

  

Q4’20

  

  

Q3’20

  

  

Q2’20

Cost of Revenue - GAAP

 

$10,785

 

$ 10,663

 

$ 9,839

$ 9,493

 

$ 8,946

Adjustments to reconcile GAAP Cost of Revenue to non-GAAP Cost of Revenue:

 

Stock-based compensation expense

 

(538)

(652)

(872)

(790)

(883)

Amortization of acquired technology

 

(536)

 

(535)

(274)

(144)

(143)

Cost of Revenue - Non-GAAP

 

$ 9,711

 

$9,476

 

$8,693

$8,559

$7,920

Research & Development - GAAP

 

$ 11,064

 

$10,841

 

$9,981

$8,328

$7,754

Adjustments to reconcile GAAP R&D to non-GAAP R&D:

Stock-based compensation expense

(1,126)

(1,588)

(1,187)

(1,148)

(1,010)

Write-down in value of property and equipment

(179)

(149)

Research & Development - Non-GAAP

$ 9,938

$9,253

$8,615

$7,180

$6,595

Selling, General, & Administrative - GAAP

$9,410

$9,464

$8,625

$8,420

$7,737

Adjustment to reconcile GAAP SG&A to non-GAAP SG&A:

Stock-based compensation expense

(1,078)

(1,129)

(928)

(1,192)

(1,085)

Expenses of arbitration (1)

(295)

(268)

(366)

(363)

Acquisition-related costs (2)

(752)

Write-down in value of property and equipment

(162)

Selling, General, & Administrative - Non-GAAP

 

$ 8,332

 

$8,040

 

$6,677

$6,862

$6,127


(1)Represents the expenses related to an arbitration proceeding over a disputed contract with a customer, which expenses are expected to continue until the arbitration is resolved.
(2)Represents transaction expenses related to the acquisition of Cimetrix Incorporated in the fourth quarter of 2020.

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Reconciliation of GAAP to Non-GAAP Spending by Function

Year to Date

(in thousands)

Six Months Ended June 30, 

  

2021

  

  

2020

  

  

2019

Cost of Revenue - GAAP

 

$ 20,848

 

$ 17,433

 

$ 15,699

Adjustments to reconcile GAAP Cost of Revenue to non-GAAP Cost of Revenue:

 

Stock-based compensation expense

 

(1,190)

(1,792)

(1,659)

Amortization of acquired technology

 

(1,071)

 

(287)

 

(287)

Restructuring charges and severance payment

Cost of Revenue - Non-GAAP

 

$ 18,587

 

$ 15,354

 

$ 13,753

Research & Development - GAAP

 

$ 21,905

 

$ 16,344

 

$ 15,558

Adjustments to reconcile GAAP R&D to non-GAAP R&D:

Stock-based compensation expense

(2,714)

(2,465)

(2,619)

Write-down in value of property and equipment

(149)

Research & Development - Non-GAAP

$ 19,191

$ 13,730

$ 12,939

Selling, General, & Administrative - GAAP

$ 18,874

$ 15,632

$ 13,951

Adjustment to reconcile GAAP SG&A to non-GAAP SG&A:

Stock-based compensation expense

(2,207)

(2,089)

(1,632)

Expenses of arbitration (1)

(295)

(464)

Write-down in value of property and equipment

(162)

Selling, General, & Administrative - Non-GAAP

 

$ 16,372

 

$ 12,917

 

$ 12,319


(1)Represents the expenses related to an arbitration proceeding over a disputed contract with a customer, which expenses are expected to continue until the arbitration is resolved.

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