PDF SOLUTIONS INC

Previous wording

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,” “projected,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target” or “continue,” the negative effect of terms like these or other similar expressions. These statements include, but are not limited to, statements concerning: expectations about the effectiveness of our business and technology strategies; expectations regarding global economic trends; the impact of rising global inflation and increased interest rates, expectations regarding recent and future acquisitions; current semiconductor industry trends; expectations of continued adoption of our solutions by new and existing customers; project milestones or delays and performance criteria achieved; cost and schedule of new product development; the provision of technology and services prior to the execution of a final contract; the continuing impact of macroeconomic conditions and other trends on the semiconductor industry and our operations or supply and demand for our products; supply chain disruptions; the success of the Company’s strategic growth opportunities and partnerships; the Company’s ability to successfully integrate acquired businesses and technologies; whether the Company can successfully convert backlog into revenue; customers’ production volumes under contracts that provide Gainshare; possible impacts from the evolving trade regulatory environment and geopolitical tensions; our assessment of the sufficiency of our cash resources and anticipated funds from operations; and our ability to obtain additional financing if needed. 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 and other information 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 publicly 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, 2023, fi…

Excerpt shortened here; the source contains the full paragraph.

Current wording

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,” “projected,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target” or “continue,” the negative effect of terms like these or other similar expressions. These statements include, but are not limited to, statements concerning: expectations about the effectiveness of our business and technology strategies; expectations regarding global economic trends; the impact of rising global inflation and increased interest rates, expectations regarding recent and future acquisitions; current semiconductor industry trends; expectations of continued adoption of our solutions by new and existing customers; project milestones or delays and performance criteria achieved; cost and schedule of new product development; the provision of technology and services prior to the execution of a final contract; the continuing impact of macroeconomic conditions and other trends on the semiconductor industry and our operations or supply and demand for our products; supply chain disruptions; the success of the Company’s strategic growth opportunities and partnerships; the Company’s ability to successfully integrate acquired businesses and technologies; whether the Company can successfully convert backlog into revenue; customers’ production volumes under contracts that provide Gainshare; possible impacts from the evolving trade regulatory environment and geopolitical tensions; our assessment of the sufficiency of our cash resources and anticipated funds from operations; our ability to obtain additional financing if needed and our ability to use support and updates for certain open-source software. 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 and other information 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 publicly 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…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Other trends may continue to affect our Characterization services business and Integrated Yield Ramp revenue specifically. For example, semiconductor manufacturers have recently been experiencing lower wafer shipments, which has negatively impacted our Integrated Yield Ramp gainshare revenue. The logic foundry market at the leading-edge nodes, such as 7nm, 5nm, and smaller, underwent significant change over the past few years. The leading foundry continues to dominate market share. This trend will likely continue to impact our Characterization services 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 extreme ultraviolet lithography, as well as new innovations in process control and variability management. We expect China’s investment in semiconductors to continue. Compliance with changing U.S. export restrictions limit our possible business with Chinese semiconductor manufacturers on advanced nodes. As a result of these market developments, we have chosen to focus our resources and investments in products, services, and solutions for analytics.

Current wording

Other trends may continue to affect our Characterization services business and Integrated Yield Ramp revenue specifically. For example, semiconductor manufacturers may experience lower wafer shipments due to weakness in the global economy, which would negatively impact the gainshare component of our Integrated Yield Ramp revenue. The logic foundry market at the leading-edge nodes, such as 7nm, 5nm, and smaller, underwent significant change over the past few years. The leading foundry continues to dominate market share. This trend will likely continue to impact our Characterization services 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 extreme ultraviolet lithography, as well as new innovations in process control and variability management. We expect China’s investment in semiconductors to continue. Compliance with changing U.S. export restrictions limit our possible business with Chinese semiconductor manufacturers on advanced nodes. As a result of these market developments, we have chosen to focus our resources and investments in products, services, and solutions for analytics.

Previous wording

See Note 1,Basis of Presentation and Summary of Significant Accounting Policies, to our unaudited 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, 2023, filed with the SEC on February 27, 2024.

Current wording

See Note 1,Basis of Presentation and Summary of Significant Accounting Policies, to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q and the Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023, for the description of our significant accounting policies, estimates and methods used in the preparation of our condensed consolidated financial statements.

Previous wording

There were no material changes during the three months ended March 31, 2024, 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 Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

There were no material changes during the three and six months ended June 30, 2024, 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 Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024.

Previous wording

Revenue from DFI systems and CV systems (including Characterization services) 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

Current wording

Revenue from DFI systems and CV systems (including Characterization services) 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 the 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.

Previous wording

The Company also leases some of its DFI system and CV system assets to some customers. The Company determines the existence of a lease when the customer controls the use of these identified assets for a period of time defined in the lease agreement and classifies such leases as operating leases or sales-type leases. A lease is classified as a sales-type lease if it meets certain criteria under ASC Topic 842, Leases; otherwise it is classified as an operating lease. Operating lease revenue is recognized on a straight-line basis over the lease term. Sales-type lease revenue and corresponding lease receivables are recognized at lease commencement based on the present value of the future lease payments, and related interest income on lease receivable is recognized over the lease term and are recorded under Analytics revenue in the accompanying condensed consolidated statements of comprehensive income (loss). Payments under sales-type leases are discounted using the interest rate implicit in the lease. When the Company’s leases are embedded in contracts with customers that include non-lease performance obligations, the Company allocates consideration in the contract between lease and non-lease components based on their relative SSPs. Assets subject to operating leases remain in property and equipment and continue to be depreciated. Assets subject to sales-type leases are derecognized from property and equipment, net at lease commencement and a net investment in the lease asset is recognized in prepaid expenses and other current assets and other non-current assets in the accompanying condensed consolidated balance sheets.

Current wording

The Company also leases some of its DFI system and CV system assets to some customers. The Company determines the existence of a lease when the customer controls the use of these identified assets for a period of time defined in the lease agreement and classifies such leases as operating leases or sales-type leases. A lease is classified as a sales-type lease if it meets certain criteria under ASC Topic 842, Leases; otherwise it is classified as an operating lease. Operating lease revenue is recognized on a straight-line basis over the lease term. Sales-type lease revenue and corresponding lease receivables are recognized at lease commencement based on the present value of the future lease payments, and related interest income on lease receivable is recognized over the lease term and are recorded under Analytics revenue in the accompanying condensed consolidated statements of comprehensive income. Payments under sales-type leases are discounted using the interest rate implicit in the

Previous wording

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-hours 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.

Current wording

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-hours 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 the 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.

Previous wording

The Gainshare contained in the 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 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.

Current wording

The Gainshare contained in Integrated Yield Ramp contracts is a variable fee related to continued usage of our IP after the fixed-fee service period ends, based on a customer’s yield achievement. Revenue derived from Gainshare is contingent upon our customers reaching certain defined production yield levels. Gainshare 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 records it in the same period in which the usage occurs.

Previous wording

We are required to assess whether it is “more-likely-than-not” that we will realize our DTAs. 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 still appropriate for our U.S. federal and state net DTAs, primarily driven by a cumulative loss incurred over the 12-quarter period ended March 31, 2024, and the likelihood that we may not utilize tax attributes before they expire. The valuation allowance was approximately $64.2 million as of March 31, 2024, and December 31, 2023. We will continue to evaluate the need

Current wording

We are required to assess whether it is “more-likely-than-not” that we will realize our DTAs. 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 still appropriate for our U.S. federal and state net DTAs, primarily driven by a cumulative loss incurred over the 12-quarter period ended June 30, 2024, and the likelihood that we may not utilize tax attributes before they expire. The valuation allowance was approximately $64.2 million as of June 30, 2024, and December 31, 2023. 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.

Previous wording

Our income tax calculations are based on the application of applicable U.S. federal, state, and/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 income (loss). As of March 31, 2024, 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 March 31, 2024. 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.

Current wording

Our income tax calculations are based on the application of applicable U.S. federal, state, and/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 income (loss). As of June 30, 2024, no deferred taxes have been provided on undistributed earnings from our international subsidiaries. We intend to reinvest the earnings of

Previous wording

The fair value of our stock options and purchase rights granted under employee stock purchase plan is estimated using the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life and interest rates. The expected volatility is based on the historical volatility of our common stock over the most recent period commensurate with the estimated expected life of our stock options and purchase rights granted under employee stock purchase plan. The expected life is based on historical

Current wording

The fair value of our stock options and purchase rights granted under employee stock purchase plan is estimated using the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life and interest rates. The expected volatility is based on the historical volatility of our common stock over the most recent period commensurate with the estimated expected life of our stock options and purchase rights granted under employee stock purchase plan. The expected life is based on historical experience and on the terms and conditions of the options granted and purchase rights granted under employee stock purchase plan. The interest rate assumption is based upon observed Treasury yield curve rates appropriate for the expected life of our stock options and purchase rights granted under employee stock purchase plan.

Previous wording

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 impairment of goodwill for the three months ended March 31, 2024.

Current wording

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 impairment of goodwill for the three and six months ended June 30, 2024 and 2023.

Previous wording

Our long-lived assets, excluding goodwill, consist of property, 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 months ended March 31, 2024.

Current wording

Our long-lived assets, excluding goodwill, consist of property, equipment, intangible assets and unguaranteed residual assets under net investments in sales-type leases. 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

Previous wording

Discussion of Financial Data for the Three Months ended March 31, 2024 and 2023

Current wording

Discussion of Financial Data for the Three and Six Months ended June 30, 2024 and 2023

Previous wording

Analytics revenue increased $2.1 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase in Analytics revenue was driven by increases in revenues from Exensio and Cimetrix software licenses, partially offset by a decrease in revenues from DFI and CV systems.

Current wording

Analytics revenue increased $1.0 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase in Analytics revenue was driven by increases in revenues from Exensio and Cimetrix software licenses, partially offset by decreases in revenues from DFI and CV systems.

Previous wording

Integrated Yield Ramp revenue decreased $1.6 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to decreases in hours worked on fixed-fees engagements and Gainshare from decreased customer wafer shipments at non-leading-edge nodes.

Current wording

Integrated Yield Ramp revenue decreased $2.5 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to decreases in Gainshare from decreased customer wafer shipments at non-leading-edge nodes and hours worked on fixed-fees engagements.

Previous wording

Costs of revenues consist primarily of costs incurred to provide and support our services, costs recognized in connection with licensing our software, IT and facilities-related costs and amortization of acquired technology. Service costs include material costs, hardware costs (including cost of leased assets under sales-type lease), personnel-related costs (including compensation), employee benefits, bonus and stock-based compensation expense, subcontractor costs, overhead costs, travel expenses, and allocated facilities-related costs. Software

Current wording

Costs of revenues consist primarily of costs incurred to provide and support our services, costs recognized in connection with licensing our software, IT and facilities-related costs and amortization of acquired technology. Service costs include material costs, hardware costs (including cost of leased assets under sales-type lease), personnel-related costs (including compensation, employee benefits, bonus and stock-based compensation expense), subcontractor costs, overhead costs, travel expenses, and allocated facilities-related costs. Software license costs consist of costs associated with third-party cloud-delivery related expenses and licensing third-party software used by us in providing services to our customers in solution engagements or sold in conjunction with our software products.

Previous wording

The increase in costs of revenues of $1.6 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, was primarily due to (i) a $1.7 million increase in hardware costs, (ii) a $0.1 million increase in third-party cloud-delivery costs and (ii) a $0.1 million increase in subcontractor costs. These increases were partially offset by a $0.2 million decrease in personnel-related costs due to lower compensation expenses, partially offset by an increase in stock-based compensation expense.

Current wording

The decrease in costs of revenues of $0.1 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was primarily due to (i) a $0.3 million decrease in hardware costs and (ii) a $0.2 million decrease in facilities and IT-related costs including depreciation expense. These decreases were partially offset by (a) a $0.2 million increase in personnel-related costs due to higher stock-based compensation expenses, increased headcount, and worldwide salary increases, partially offset by lower bonus expense, and (b) a $0.1 million increase in third-party cloud-delivery costs.

Previous wording

Gross margin decreased four percentage points for the three months ended March 31, 2024, to 67%, compared to 71% for the three months ended March 31, 2023. The lower gross margin during the three months ended March 31, 2024, was primarily due to higher cost of revenues and lower Gainshare revenue for the three months ended March 31, 2024.

Current wording

Gross margin decreased two percentage points for the six months ended June 30, 2024, to 69%, compared to 71% for the six months ended June 30, 2023. The lower gross margin during the six months ended June 30, 2024, was primarily due to lower Integrated Yield Ramp revenue and higher cost of revenues for the six months ended June 30, 2024.

Previous wording

Research and development expenses decreased $0.1 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to (i) a $0.3 million decrease in subcontractor fees primarily related to DFI systems and (ii) a $0.1 million decrease in facilities and IT-related costs including depreciation expense, partially offset by (a) a $0.3 million increase in personnel-related costs mostly resulting from higher stock-based compensation and employee benefits expenses, partially offset by lower bonus expenses, and (b) a $0.1 million increase in third-party cloud-services costs.

Current wording

Research and development expenses increased $0.3 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to (i) a $0.6 million increase in personnel-related costs mostly resulting from higher stock-based compensation expenses, higher other compensation expenses (including employee benefit costs), increased headcount, and worldwide salary increases, partially offset by lower bonus expense, and (ii) a $0.2 million increase in third-party cloud-services costs, partially offset by (a) a $0.3 million decrease in subcontractor fees primarily related to DFI systems and (b) a $0.2 million decrease in facilities and IT-related costs including depreciation expense.

Previous wording

Selling, general, and administrative expenses consist primarily of personnel-related costs including compensation, employee benefits, bonus, commission and stock-based compensation expense for sales, marketing, and general and administrative personnel, legal, tax and accounting services, marketing communications expenses, third-party cloud-services related costs, travel, IT, and facilities cost allocations.

Current wording

Selling, general, and administrative expenses consist primarily of personnel-related costs (including compensation, employee benefits, bonus, commission and stock-based compensation expense for sales, marketing, and general and administrative personnel), legal, tax and accounting services, marketing communications and trade conference-related expenses, third-party cloud-services related costs, travel, business acquisition costs, IT, and facilities cost allocations.

Previous wording

Selling, general, and administrative expenses increased $0.9 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to (i) a $2.4 million increase in personnel-related costs mainly resulting from increases in stock-based and other compensation expense, including commission, employee benefit costs, headcount and worldwide salary increases, (ii) a $0.6 million increase in general legal expenses and (iii) a $0.2 million increase in third-party cloud-services costs. These were partially offset by a $2.1 million decrease in legal fees related to the arbitration proceeding over a disputed customer contract.

Current wording

Selling, general, and administrative expenses increased $2.3 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to (i) a $3.2 million increase in personnel-related costs mainly resulting from higher stock-based compensation expenses, higher other compensation expenses (including commissions and employee benefit costs), increased headcount, and worldwide salary increases, partially offset by lower bonus expense, and (ii) a $1.6 million increase in legal expenses (excluding arbitration-related expenses). These increases were partially offset by (a) a $2.3 million decrease in legal fees related to the arbitration proceeding over a disputed customer contract and (b) a $0.2 million decrease in business acquisition costs.

Previous wording

Interest and other expense (income), net increased $0.8 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to higher interest income resulting from higher interest rates, and net favorable fluctuations in foreign currency exchange rates.

Current wording

Interest and other expense (income), net increased $0.4 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to higher interest income resulting from higher interest rates and sales-type leases, and net favorable fluctuations in foreign currency exchange rates.

Previous wording

Income tax expense decreased for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to changes in the foreign and state taxes and year-to-date recognition of worldwide pre-tax income (loss) in relation to their forecasted amounts for full years.

Current wording

Income tax expense increased for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, primarily due to changes in the foreign and state taxes and year-to-date recognition of worldwide pre-tax income (loss) in relation to their forecasted amounts for full years.

Previous wording

Any significant change in our future effective tax rates could adversely impact our consolidated financial position, results of operations and cash flows. Our future tax rates may be adversely affected by a number of factors including increase in expenses not deductible for tax purposes, new or changing tax legislation in the United States and in foreign countries where we are subject to tax jurisdictions, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, our ability to use tax attributes such as research and development tax credits and net operation losses, the tax effects of employee stock activity, audit

Current wording

Any significant change in our future effective tax rates could adversely impact our consolidated financial position, results of operations and cash flows. Our future tax rates may be adversely affected by a number of factors including increase in expenses not deductible for tax purposes, new or changing tax legislation in the United States and in foreign countries where we are subject to tax jurisdictions, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, our ability to use tax attributes such as research and development tax credits and net operation losses, the tax effects of employee stock activity, audit examinations with adverse outcomes, changes in accounting principles generally accepted in the United States of America and the effectiveness of our tax planning strategies.

Previous wording

As of March 31, 2024, our working capital, defined as total current assets less total current liabilities, was $135.5 million, compared to $147.0 million as of December 31, 2023. Total cash, cash equivalents, and short-term investments were $122.9 million as of March 31, 2024, compared to cash, cash equivalents, and short-term investments of $135.5 million as of December 31, 2023. As of March 31, 2024, and December 31, 2023, cash and cash equivalents held by our foreign subsidiaries were $11.1 million and $10.0 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, other obligations for at least the next twelve months, and thereafter for the foreseeable future, however, we will continue to evaluate if we require additional funding to meet our longer term needs.

Current wording

As of June 30, 2024, our working capital, defined as total current assets less total current liabilities, was $137.8 million, compared to $147.0 million as of December 31, 2023. Total cash, cash equivalents, and short-term investments were $117.9 million as of June 30, 2024, compared to cash, cash equivalents, and short-term investments of $135.5 million as of December 31, 2023. As of June 30, 2024, and December 31, 2023, cash and cash equivalents held by our foreign subsidiaries were $9.8 million and $10.0 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, other obligations for at least the next twelve months, and thereafter for the foreseeable future; however, we will continue to evaluate if we require additional funding to meet our longer-term needs.

Previous wording

On April 11, 2022, the Board of Directors adopted a stock repurchased program (the “2022 Program”) to repurchase up to $35.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, from time to time, over the next two years. During the three months ended March 31, 2024, 201,561 shares were repurchased by the Company under the 2022 Program at an average price of $34.23 per share for an aggregate total price of $6.9 million. In total, the Company has repurchased 937,501 shares under the 2022 Program at an average price of $25.96 per share for an aggregate total price of $24.3 million.

Current wording

On April 11, 2022, the Board of Directors adopted a stock repurchase program (the “2022 Program”) to repurchase up to $35.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, from time to time, over the next two years. During the six months ended June 30, 2024, 201,561 shares were repurchased by the Company under the 2022 Program at an average price of $34.23 per share for an aggregate total price of $6.9 million. In total, the Company repurchased 937,501 shares under the 2022 Program at an average price of $25.96 per share for an aggregate total price of $24.3 million.

Previous wording

Cash flows used in operating activities during the three months ended March 31, 2024, consisted of net loss, adjusted for certain non-cash items which primarily consisted of depreciation and amortization, stock-based compensation expense, amortization of acquired intangible expense, amortization of costs capitalized to obtain revenue contracts, net accretion of discounts on short-term investments, and net change in operating assets and liabilities.

Current wording

Cash flows used in operating activities during the six months ended June 30, 2024, consisted of net income, adjusted for certain non-cash items which primarily consisted of depreciation and amortization, stock-based compensation expense, amortization of acquired intangible expense, amortization of costs capitalized to obtain revenue contracts, net accretion of discounts on short-term investments, and net change in operating assets and liabilities.

Previous wording

Net cash flows used in operating activities was $1.9 million for the three months ended March 31, 2024, compared to net cash flows used in operating activities of $1.0 million for the three months ended March 31, 2023. The $0.9 million increase in cash flows used in operating activities between the periods was driven primarily by payments under the Company’s bonus plan, changes in net income (loss) between comparable periods, partially

Current wording

Net cash flows used in operating activities was $1.2 million for the six months ended June 30, 2024, compared to net cash flows used in operating activities of $6.6 million for the six months ended June 30, 2023. The decrease in cash used in operating activities between the periods was driven primarily by (i) a decrease in bonus payments under the Company’s bonus plan, (ii) a decrease in payments of vendor invoices, and (iii) an increase in interest income, partially offset by lower collections from customers and net income between comparable periods. Net income was $1.3 million for the six months ended June 30, 2024, compared to a net income of $7.2 million for the six months ended June 30, 2023.

Previous wording

The major contributors to the net change in operating assets and liabilities for the three months ended March 31, 2024, were as follows:

Current wording

The major contributors to the net change in operating assets and liabilities for the six months ended June 30, 2024, were as follows:

Previous wording

For the three months ended March 31, 2024, cash used in investing activities primarily related to purchases of short-term investments of $19.6 million, purchases of property and equipment of $2.0 million primarily related to our DFI systems, partially offset by proceeds from maturities and sales of short-term investments of $19.0 million.

Current wording

For the six months ended June 30, 2024, cash provided by investing activities primarily related to proceeds from maturities and sales of short-term investments of $37.0 million, partially offset by purchases of short-term investments of $25.5 million and purchases of property and equipment of $7.3 million primarily related to our DFI systems.

Previous wording

For the three months ended March 31, 2023, cash used in investing activities primarily related to purchases of short-term investments of $6.4 million and purchases of property and equipment of $2.9 million primarily related to our DFI systems and CV systems, partially offset by proceeds from maturities and sales of short-term investments of $7.0 million.

Current wording

For the six months ended June 30, 2023, cash used in investing activities primarily related to purchases of short-term investments of $23.5 million and purchases of and prepayments for property and equipment of $6.0 million primarily related to our DFI and CV systems, partially offset by proceeds from maturities and sales of short-term investments of $19.8 million.

Previous wording

For the three months ended March 31, 2024, net cash used in financing activities primarily consisted of repurchases of common stock of $6.9 million, $3.8 million in cash payments for taxes related to net share settlement of equity awards, partially offset by $1.9 million of proceeds from our employee stock purchase plan and exercise of stock options.

Current wording

For the six months ended June 30, 2024, net cash used in financing activities primarily consisted of repurchases of common stock of $6.9 million, and $4.3 million in cash payments for taxes related to net share settlement of equity awards, partially offset by $2.0 million of proceeds from our employee stock purchase plan and exercise of stock options.

Previous wording

For the three months ended March 31, 2023, net cash used in financing activities primarily consisted of $4.1 million in cash payments for taxes related to net share settlement of equity awards, partially offset by $2.0 million of proceeds from our employee stock purchase plan and exercise of stock options.

Current wording

For the six months ended June 30, 2023, net cash used in financing activities primarily consisted of $4.6 million in cash payments for taxes related to net share settlement of equity awards, partially offset by $2.1 million of proceeds from our employee stock purchase plan and exercise of stock options.