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 related to: the Company’s business strategy and objectives; the Company’s intellectual property and proprietary software, information and technology; the Company’s sales and marketing strategy, expectations regarding strategic alliances and relationships; investments in research and development; industry trends; macroeconomic factors, inventories, and demand; changing export controls and sanctions; U.S. administrative initiatives; investments in semiconductor manufacturing; geopolitical tensions and conflicts; fluctuations in the Company’s quarterly results; and other statements identified by words such as “could,” “expects,” “intends,” “may,” “plans,” “potential,” “should,” “will,” “would,” or similar expressions and the negatives of those terms, that are subject to future events and circumstances, and uncertainties that could cause results to differ materially include risks associated with: the effectiveness of the Company’s business and technology strategies; current semiconductor industry trends and competition; rates of adoption of the Company’s solutions by new and existing customers; project milestones or delays and performance criteria achieved; cost and schedule of new product development and investments in research and development; the continuing impact of macroeconomic conditions, including inflation, changing interest rates and tariffs, the evolving trade regulatory environment and geopolitical tensions, and other trends impacting the semiconductor industry, the Company’s customers, operations, and supply and demand for its products; supply chain disruptions; changes in laws and regulations, including recent tax and data privacy laws and regulations, or the interpretation or enforcement thereof; the success of the Company’s strategic growth opportunities and partnerships; recent and future acquisitions, strategic alliances and relationships and 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; the sufficiency of the Company’s cash resources and anticipated funds from operations; the Company’s ability to obtain additional financing if needed; the Company’s ability to use support and updates for certain open-source software; and other risks and uncertainties discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”). 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, 2024, filed with the SEC on February 27, 2025 (the “Annual Report”). All references to “we,” “us,” “our,” “PDF,” “PDF Solutions” or “the Company” refer to PDF Solutions, Inc.
Cimetrix, CV, DFI, Exensio, PDF Solutions, secureWISE, and the Cimetrix, Exensio, PDF Solutions, and secureWISE logos, are trademarks or registered trademarks of PDF Solutions, Inc. or its subsidiaries.
Overview
We offer products and services designed to empower organizations across the semiconductor and electronics ecosystems to connect, collect, manage, transfer, and analyze data about design, equipment, manufacturing, and test to improve the yield and quality of their products. We derive revenues from two sources: Analytics and Integrated Yield Ramp. Our offerings combine proprietary software, professional services using proven methodologies, third-party cloud-hosting platforms for software-as-a-service (“SaaS”), electrical measurement hardware tools, and physical intellectual property (“IP”) for integrated circuit (“IC”) designs. We primarily monetize our offerings through license fees and contract fees for professional services and SaaS. In some cases, especially on our historical Integrated Yield Ramp engagements, we also receive a value-based variable fee or royalty, which we call Gainshare. Our products, services, and solutions have been sold to integrated device manufacturers (“IDMs”), fabless semiconductor companies, foundries, out-sourced semiconductor assembly and test (“OSATs”), capital equipment manufacturers, and system houses.
We are headquartered in Santa Clara, California and also operate worldwide with offices in Canada, China, France, Germany, Italy, Japan, Korea, and Taiwan.
Acquisition of SecureWise LLC
On March 7, 2025, we completed the acquisition of SecureWise LLC (“SecureWise”), a Delaware limited liability company (see Note 14, Business Combinations, in the notes to the condensed consolidated financial statements (unaudited) in Part I, Item 1 of this Quarterly Report on Form 10-Q), and added the widely-used, secure, remote secureWISE connectivity solution to our products and services portfolio. We expect this acquisition to also accelerate equipment makers’ ability to derive value from equipment data by enabling them to leverage our Exensio analytics software and to expand the capability of our secure data exchange (“DEX”) outsourced semiconductor assembly and test (“OSAT”) network by allowing equipment makers, fab operators, and fabless companies to collaborate to optimize chip manufacturing and test.
Industry Trends
Certain trends may affect our Analytics revenue specifically. In particular, the confluence of Industry 4.0 (i.e. the fourth industrial revolution, or the automation and data exchange in manufacturing technologies and processes) and cloud computing (i.e. the on-demand availability of computing resources and data storage without direct active management by the user) is driving increased innovation in semiconductor and electronics manufacturing and analytics, as well as in the organization of information technology (“IT”) networks and computing at semiconductor and electronics companies across the ecosystem. First, the ubiquity of wireless connectivity and sensor technology enables any manufacturing company to augment its factories and visualize its entire production line. In parallel, the cost per terabyte of data storage has generally decreased over time. The combination of these two trends means that more data is collected and stored than ever before. Further, semiconductor companies are striving to analyze these very large data sets in real-time to make rapid decisions that measurably improve manufacturing efficiency and quality. In parallel, the traditional practice of on-site data storage, even for highly sensitive data, is changing. The ability to cost-effectively and securely store, analyze, and retrieve massive quantities of data from the cloud versus on-premise enables data to be utilized across a much broader population of users, frequently resulting in greater demands on analytics programs. The combination of these latter two trends means that cloud-based, analytics programs that effectively manage identity management, physical security, and data protection are increasingly in demand for insights and efficiencies across the organizations of these companies. We believe that all these trends will continue for the next few years, and the challenges involved in adopting Industry 4.0 and secure cloud computing will create opportunities for our combination of advanced analytics capabilities, proven and established supporting infrastructure, and professional services to configure our products to meet customers’ specialized needs.
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 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 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, 2.5D and 3D packaging, extreme ultraviolet lithography, and 3D architectures such as backside power and gate-all-around transistors, 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 (including differentiated data), services, and solutions for analytics.
There are other global or business trends that may affect our business opportunities generally as follows:
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Macroeconomy, inventories, and demand. The worldwide economic performance is uneven, and the possibility of a recession persists, leading to uneven demand. Inventories of semiconductor devices remain elevated in some instances. With high inventories and soft demand for some product segments, some semiconductor fab utilization rates are also low and semiconductor capital equipment orders have been impacted for some vendors and market segments. As a result, some purchase cycles, especially for enterprise software and capital equipment and particularly with respect to larger deals, have lengthened in recent years and may continue to do so.
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Changing export controls and sanctions. The U.S. government continues intense export controls and sanctions focused on the destinations of and/or entities in the People’s Republic of China (“P.R.C.”), Russian Federation, and Belarus. Some customers in the P.R.C. have expressed concern about the potential for supply chain disruption due to such regulations. This has in some cases, and could in the future, negatively impact the demand for our products and services by these customers. More recently, increased volatility has appeared in controls as economic transactional views compete with traditional national security views in the U.S. government. In the third quarter, the U.S. government issued a new “50% Rule” extending export control restrictions to a large number of unlisted subsidiaries of companies that are named on restricted party lists, a change that impinges on markets for U.S. items and requires expenditure of additional due diligence resources. Soon thereafter, the P.R.C. announced plans to restrict export and foreign re-export of certain P.R.C.-origin or -linked rare earth materials and technologies that are important to many global industries, followed immediately by U.S. threats to increment tariffs on China-origin goods by another 100%. In late October, the U.S. and P.R.C. governments were moving toward de-escalation of the trade confrontation, but the episode underscored the salient instability and risk of shocks in global trade at this time. Other jurisdictions with important roles in our industry continue to update some of their export control regulations to further align with the U.S. government. Continued tight restrictions, rapid evolution, and/or unpredictability in regulations each could negatively affect our sales. Based on our current assessments, we expect the near-term impact of these evolving trade restrictions on our business to be limited but shifting and competing policy directions leave much unknown.
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U.S. Administrative Initiatives. The new U.S. Administration has made and is expected to continue to make changes to U.S. trade policy, including renegotiating or terminating existing trade agreements and leveraging tariffs. For example, the U.S. imposed additional tariffs on imports from China, Canada, and Mexico. We do not import into the U.S. a significant volume of goods of those countries. Trade conflict through exchange of tariffs and other retaliatory actions are expected to impact worldwide supply chains, increase prices and put downward pressure on economic activity, and could negatively affect our future sales in various geographic markets. The uncertainty caused by these regulations and the potential for additional future restrictions could negatively affect our future sales, including in but not limited to the P.R.C. market. Tax legislation continues to evolve globally with new laws and regulations that create uncertainty in the global economy. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. which includes significant provisions regarding corporate taxes, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The OBBBA has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We completed our initial assessment of the OBBBA corporate tax provisions during the third quarter of 2025. OBBBA contained U.S. corporate tax provisions under which the Company elected to expense U.S. incurred research or experimental expenditures immediately. As a result of these elections, we anticipate a favorable cash tax benefit of approximately $0.9 million and reduction of effective tax rate by approximately 19% in 2025.
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Geopolitical tensions/conflicts. Geopolitical tensions and conflicts in various locations around the world have created volatility in the global financial markets and may have further global economic consequences, including potential disruptions of the global supply chain, heightened volatility of commodity and raw material prices, and increased fears of a global recession. We have contractors located in the West Bank and in Israel, who are providing software development and customer technical support services, and we have developed contingency plans to use alternative resources to continue serving customers, if needed. Any escalations could lead to disruptions or reductions in international trade, deter or prevent purchasing activity of customers, and negatively impact our development timelines and customer support (with respect to the conflicts in the Middle East) or China sales (with respect to U.S.-P.R.C. tensions) and financial results in general (with respect to global tensions).
Financial Highlights
Financial highlights for the three months ended September 30, 2025, are as follows:
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Total revenues were $57.1 million, an increase of $10.7 million, or 23%, compared to the three months ended September 30, 2024. Analytics revenue was $54.7 million, an increase of $9.9 million, or 22%, compared to the three months ended September 30, 2024. The increase in Analytics revenue year-over-year was primarily driven by an increase in revenues from CV systems, the addition of revenues related to secureWISE products and services, and an increase in revenues from DFI systems, partially offset by a decrease in revenues from Exensio software licenses. Integrated Yield Ramp revenue was $2.5 million, an increase of $0.8 million, or 48%, compared to the three months ended September 30, 2024. The increase in Integrated Yield Ramp revenue year-over-year was primarily due to higher Gainshare from increased customer wafer shipments at non-leading-edge nodes, partially offset by decrease in hours worked on fixed-fees engagements.
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Costs of revenues increased by $3.4 million, compared to the three months ended September 30, 2024, primarily due to increases in personnel-related costs, subcontractor costs, facilities and IT-related costs, including depreciation and amortization expense, amortization of acquired technology, third-party cloud delivery costs, and software license and maintenance costs.
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Net income was $1.3 million, compared to a net income of $2.2 million for the three months ended September 30, 2024. The decrease in net income was primarily attributable to (i) an increase in overall costs and expenses mainly due to increase in personnel-related expenses, increased costs related to the operation of SecureWise, increase in amortization of acquired intangible assets, facilities and IT-related costs, travel expenses, subcontractor fees, (ii) an increase in interest expense from our long-term debt, (iii) an increase in income tax expense, and (iv) a decrease in interest income during the quarter, partially offset by an increase in total revenues, and a decrease in legal fees.
Financial highlights for the nine months ended September 30, 2025, are as follows:
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Total revenues were $156.6 million, an increase of $27.2 million, or 21%, compared to the nine months ended September 30, 2024. Analytics revenue was $146.0 million, an increase of $24.6 million, or 20%, compared to the nine months ended September 30, 2024. The increase in Analytics revenue year-over-year was primarily driven by an increase in revenues from CV systems, the addition of revenues related to secureWISE products and services, and an increase in revenues from Cimetrix software licenses, partially offset by a decrease in revenues from DFI systems. Integrated Yield Ramp revenue was $10.7 million, an increase of $2.6 million, or 32%, compared to the nine months ended September 30, 2024. The increase in Integrated Yield Ramp revenue year-over-year was primarily due to higher Gainshare from increased customer wafer shipments at non-leading-edge nodes; partially offset by a decrease in hours worked on fixed-fees engagements.
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Costs of revenues increased by $5.4 million, compared to the nine months ended September 30, 2024, primarily due to increases in personnel-related costs, amortization of acquired technology, software license and maintenance costs, third-party cloud-delivery costs, partially offset by a decrease in hardware costs.
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Net loss was $0.6 million, compared to a net income of $3.5 million for the nine months ended September 30, 2024. The decrease in net income was primarily attributable to (i) an increase in overall costs and expenses mainly due to increase in personnel-related expenses, costs related to the acquisition and operation of SecureWise, increase in subcontractor fees, amortization of acquired intangible assets, travel expenses, third-party cloud-services related costs, facilities and IT-related costs, software license and maintenance costs, (ii) an increase in interest expense from our long-term debt, (iii) a decrease in interest income, and (iv) net unfavorable fluctuations in foreign currency exchange rates, partially offset by an increase in total revenues, recovery from previously written-off property and equipment, and decrease in legal fees, hardware costs, and income tax expense.
Critical Accounting Policies
Our discussion and analysis of our financial conditions, results of operations and cash flows are based on our condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Our preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The most significant estimates and assumptions relate to revenue recognition, valuation of long-lived assets including goodwill and intangible assets, stock-based compensation and the realization of deferred tax assets (“DTAs”). Actual amounts may differ from such estimates under different assumptions or conditions.
For additional information about our critical accounting policies, see Note 1, Basis of Presentation and Summary of Significant Accounting Policies, and Note 2, Revenue from Contracts with Customers to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10‑Q and Part II Item 7**,**Management’s Discussion and Analysis of Financial Condition and Results of Operation, under the heading of “Critical Accounting Estimates” in our Annual Report. There were no material changes during the three and nine months ended September 30, 2025, to the items that we disclosed as our critical accounting policies and estimates in Part II, Item 7 of the Annual Report.
Recent Accounting Pronouncements and Accounting Changes
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.
Results of Operations
Discussion of Financial Data for the Three and Nine Months ended September 30, 2025 and 2024
Revenues, Costs of Revenues, and Gross Margin
| (Dollars in thousands) | Three Months EndedSeptember 30, 2025 | Three Months EndedSeptember 30, 2024 | Change | Nine Months EndedSeptember 30, 2025 | Nine Months EndedSeptember 30, 2024 | Change |
|---|---|---|---|---|---|---|
| Revenues: | ||||||
| Analytics | $54,662 | $44,750 | $22 | $145,955 | $121,327 | $20% |
| Integrated Yield Ramp | 2,453 | 1,659 | 48 | 10,666 | 8,053 | 32% |
| Total revenues | 57,115 | 46,409 | 23 | 156,621 | 129,380 | 21% |
| Costs of revenues | 15,840 | 12,484 | 27 | 43,681 | 38,243 | 14% |
| Gross profit | $41,275 | $33,925 | $22 | $112,940 | $91,137 | $24% |
| Gross margin | 72% | 73% | 72% | 70% | ||
| Analytics revenue as a percentage of total revenues | 96% | 96% | 93% | 94% | ||
| Integrated Yield Ramp revenue as a percentage of total revenues | 4% | 4% | 7% | 6% |
Analytics Revenue
Analytics revenue increased $9.9 million for the three months ended September 30, 2025, compared to the same period in 2024. The increase in Analytics revenue was primarily driven by an increase in revenues from CV systems, the addition of revenues related to secureWISE products and services, and an increase in revenues from DFI systems, partially offset by a decrease in revenues from Exensio software licenses.
Analytics revenue increased $24.6 million for the nine months ended September 30, 2025, compared to the same period in 2024. The increase in Analytics revenue was primarily driven by an increase in revenues from CV systems, the addition of revenues related to secureWISE products and services, increase in revenues from DFI systems, and an increase in revenues from Cimetrix software licenses, partially offset by a decrease in revenues from Exensio software licenses.
Integrated Yield Ramp Revenue
Integrated Yield Ramp revenue increased $0.8 million for the three months ended September 30, 2025, compared to the same period in 2024, primarily due to higher Gainshare from increased customer wafer shipments at non-leading-edge nodes, partially offset by decrease in hours worked on fixed fee engagements.
Integrated Yield Ramp revenue increased $2.6 million for the nine months ended September 30, 2025, compared to the same period in 2024, primarily due to higher Gainshare from increased customer wafer shipments at non-leading-edge nodes, partially offset by a decrease in hours worked on fixed-fees engagements.
Our Integrated Yield Ramp revenue may continue to fluctuate from period to period primarily due to the contribution of Gainshare, which is dependent on many factors that are outside our control, including among others, continued production of ICs by our customers at facilities at which we generate Gainshare, sustained yield improvements by our customers, and whether we enter into new contracts containing Gainshare.
Our Analytics and Integrated Yield Ramp revenues may also fluctuate in the future and are dependent on a number of factors, including the semiconductor industry’s continued acceptance of our products, services and solutions, customers’ decisions on whether to purchase or lease DFI systems, the timing of purchases by existing and new customers, cancellations by existing customers, and our ability to attract new customers and penetrate new markets, supply chain challenges and further penetration of our current customer base. Fluctuations in future results may also occur if any of our significant customers renegotiate pre-existing contractual commitments, including due to adverse changes in their own business.
Costs of Revenues
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 from business acquisitions. 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.
The increase in costs of revenues of $3.4 million for the three months ended September 30, 2025, compared to the same period in 2024, was primarily due to (i) a $1.0 million increase in personnel-related costs due to worldwide salary increases, increased headcount and bonus expense, (ii) a $0.7 million increase in subcontractor costs, (iii) a $0.4 million increase in facilities and IT-related costs, including depreciation and amortization expense, (iv) a $0.4 million increase in amortization of acquired technology, (v) a $0.3 million increase in third-party cloud-delivery related costs, and (vi) a $0.3 million increase in software license and maintenance costs.
The increase in costs of revenues of $5.4 million for the nine months ended September 30, 2025, compared to the same period in 2024, was primarily due to (i) a $2.0 million increase in subcontractor costs, (ii) a $1.8 million increase in personnel-related costs due to worldwide salary increases, higher fringe benefits expense and bonus expense, (iii) a $0.9 million increase in amortization of acquired technology, (iv) a $0.9 million increase in software license and maintenance costs, and (v) a $0.8 million increase in third-party cloud-delivery related costs, partially offset by a $1.2 million decrease in hardware costs.
Gross Margin
Gross margin decreased one percentage point for the three months ended September 30, 2025, to 72% compared to 73% for the same period in 2024, primarily due to higher costs.
Gross margin increased two percentage points for the nine months ended September 30, 2025, to 72% compared to 70% for the same period in 2024. The higher gross margin during the nine months ended September 30, 2025, was primarily due to higher Analytics revenue and contribution to revenue from Gainshare for the nine months ended September 30, 2025.
Operating Expenses:
Research and Development
| (Dollars in thousands) | Three Months EndedSeptember 30, 2025 | Three Months EndedSeptember 30, 2024 | Change$ | Change% | Nine Months EndedSeptember 30, 2025 | Nine Months EndedSeptember 30, 2024 | Change$ | Change% |
|---|---|---|---|---|---|---|---|---|
| Research and development | $15,435 | $13,516 | $1,919 | 14% | $44,976 | $39,149 | $5,827 | 15% |
| As a percentage of total revenues | 27% | 29% | 29% | 30% |
Research and development expenses consist primarily of personnel-related costs (including compensation, employee benefits, bonus and stock-based compensation expense), outside development services, travel expenses, third-party cloud-services related costs, IT and facilities cost allocations to support product development activities.
Research and development expenses increased $1.9 million for the three months ended September 30, 2025, compared to the same period in 2024, primarily due to (i) a $0.6 million increase in personnel-related costs due to increased headcount, worldwide salary increases, and higher bonus expense and stock-based compensation expense, (ii) a $0.6 million increase in subcontractor fees primarily related to secureWISE products and Exensio software, (iii) a $0.5 million increase in facilities and IT-related costs, including depreciation and amortization expense, and (iv) a $0.2 million increase in travel expenses.
Research and development expenses increased $5.8 million for the nine months ended September 30, 2025, compared to the same period in 2024, primarily due to (i) a $2.3 million increase in personnel-related costs due to increased headcount, worldwide salary increases, and higher bonus and stock-based compensation expense, (ii) a $1.7 million increase in subcontractor fees primarily related to secureWISE products and Exensio software, (iii) a $1.3 million increase in facilities and IT-related costs, including depreciation and amortization expense, and (iv) a $0.5 million increase in travel expenses.
We anticipate our expenses in research and development will fluctuate in absolute dollars from period to period as a result of the size and the timing of product development projects.
Selling, General, and Administrative
| (Dollars in thousands) | Three Months EndedSeptember 30, 2025 | Three Months EndedSeptember 30, 2024 | Change$ | Change% | Nine Months EndedSeptember 30, 2025 | Nine Months EndedSeptember 30, 2024 | Change$ | Change% |
|---|---|---|---|---|---|---|---|---|
| Selling, general, and administrative | $19,944 | $18,094 | $1,850 | 10% | $63,060 | $50,851 | $12,209 | 24% |
| As a percentage of total revenues | 35% | 39% | 40% | 39% |
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.
Selling, general, and administrative expenses increased $1.9 million for the three months ended September 30, 2025, compared to the same period in 2024, primarily due to (i) a $1.8 million increase in personnel-related costs mainly driven by increased headcount, worldwide salary increases, and higher bonus expense, partially offset by a decrease in stock-based compensation expense, (ii) a $0.4 million increase in travel expense, and (iii) a $0.3 million increase in subcontractor fees, partially offset by a $0.4 million decrease in legal fees, and a $0.2 million decrease in facilities and IT-related costs.
Selling, general, and administrative expenses increased $12.2 million for the nine months ended September 30, 2025, compared to the same period in 2024, primarily due to (i) a $7.0 million increase in personnel-related costs mainly driven by increased headcount, worldwide salary increases, and higher bonus expense and stock-based compensation expense, (ii) a $4.5 million in non-recurring legal, finance, integration, and other costs related to the acquisition of SecureWise, (iii) a $1.3 million increase in subcontractor fees, (iv) a $0.7 million increase in travel expense, (v) $0.3 million increase in facilities and IT-related costs, including shipping costs and depreciation expense, and (vi) a $0.3 million increase in third-party cloud-services related costs, partially offset by a $2.0 million decrease in legal and professional fees.
We anticipate our selling, general, and administrative expenses will fluctuate in absolute dollars from period to period as a result of cost control initiatives and to support increased selling efforts in the future.
Amortization of Acquired Intangible Assets
| (Dollars in thousands) | Three Months EndedSeptember 30, 2025 | Three Months EndedSeptember 30, 2024 | Change$ | Change% | Nine Months EndedSeptember 30, 2025 | Nine Months EndedSeptember 30, 2024 | Change$ | Change% |
|---|---|---|---|---|---|---|---|---|
| Amortization of acquired intangible assets | $1,069 | $196 | $873 | 445% | $2,515 | $714 | $1,801 | 252% |
Amortization of acquired intangible assets represents amortization expense on intangibles assets acquired from prior and current year business combinations.
Interest Expense
| (Dollars in thousands) | Three Months EndedSeptember 30, 2025 | Three Months EndedSeptember 30, 2024 | Change$ | Change% | Nine Months EndedSeptember 30, 2025 | Nine Months EndedSeptember 30, 2024 | Change$ | Change% |
|---|---|---|---|---|---|---|---|---|
| Interest expense | $(1,238) | — | $(1,238) | 100% | $(2,791) | — | $(2,791) | 100% |
Interest expense is from our long-term debt that was used in financing the acquisition of SecureWise, and amortization of debt discount and financing costs.
Other Income (Expense), Net
| (Dollars in thousands) | Three Months EndedSeptember 30, 2025 | Three Months EndedSeptember 30, 2024 | Change$ | Nine Months EndedSeptember 30, 2025 | Nine Months EndedSeptember 30, 2024 | Change$ | ||
|---|---|---|---|---|---|---|---|---|
| Other income (expense), net | $(102) | $1,511 | $(1,613) | )% | $964 | $4,682 | $(3,718) | )% |
Other income (expense), net, primarily consists of interest income and foreign currency transaction exchange gains and losses. Other income (expense), net decreased $1.6 million for the three months ended September 30, 2025, compared to the same period in 2024, primarily due to (i) $1.5 million decrease in interest income from cash, cash equivalents and short-term investments, and (ii) $0.1 million net unfavorable fluctuations in foreign currency exchange rates.
Other income (expense), net decreased $3.7 million for the nine months ended September 30, 2025, compared to the same period in 2024, primarily due to (i) a $3.4 million decrease in interest income from cash, cash equivalents and short-term investments, and (ii) $1.1 million net unfavorable fluctuations in foreign currency exchange rates, partially offset by a $0.6 million recovery from previously written-off property and equipment.
Income Tax Expense
| (Dollars in thousands) | Three Months EndedSeptember 30, 2025 | Three Months EndedSeptember 30, 2024 | Change | Nine Months EndedSeptember 30, 2025 | Nine Months EndedSeptember 30, 2024 | Change | % |
|---|---|---|---|---|---|---|---|
| Income tax expense | $(2,193) | $(1,424) | $54 | $(1,154) | $(1,587) | $(27) | )% |
Income tax expense increased for the three months ended September 30, 2025, and decreased for the nine months ended September 30, 2025, compared to the same period in 2024, primarily due to the impact of enacted U.S. federal tax legislation, changes in the foreign, federal and state taxes and year-to-date recognition of worldwide pre-tax income in relation to their forecasted amounts for the full year.
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.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. ASC 740, Income Taxes, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. We completed our initial assessment of the OBBBA corporate tax provisions during the third quarter of 2025. OBBBA contained U.S. corporate tax provisions under which the Company elected to expense U.S. incurred research or experimental expenditures immediately. As a result of these elections, we anticipate a favorable cash tax benefit of approximately $0.9 million and reduction of effective tax rate by approximately 19% in 2025.
Liquidity and Capital Resources
As of September 30, 2025, our working capital, defined as total current assets less total current liabilities, was $80.0 million, compared to $145.4 million as of December 31, 2024. Total cash, cash equivalents, and short-term investments were $35.9 million as of September 30, 2025, compared to $114.9 million as of December 31, 2024. As of September 30, 2025, and December 31, 2024, cash and cash equivalents held by our foreign subsidiaries were $4.8 million and $13.3 million, respectively.
Our material cash requirements include principal and interest payments on our debt, operating lease payments, and purchase obligations to support our operations. Refer to Part I, Item 1, Financial Statements, Note 4, Leases, Note 5, Debt, Note 12, Commitments and Contingencies and Note 14, Business Combination for details relating to our material cash requirements for debt, leasing arrangements, including future maturities of operating lease liabilities, and purchase obligations, 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 including repayment of long-term debt and corresponding interest 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.
Term Loan and Revolving Credit Facility
On March 7, 2025, we entered into a Credit Agreement (the “Credit Agreement”) with the lenders who are party to the Credit Agreement and the lenders who may become a party to the Credit Agreement pursuant to the terms thereof (the “Lenders”) and Wells Fargo Bank, National Association, as administrative agent to the Lenders (the “Agent”).
The Credit Agreement provides for (a) a revolving credit facility in an aggregate principal amount of $45 million (the “Revolving Credit Facility”) and (b) a term loan facility in an aggregate principal amount of $25 million (the “Term Loan” and together with the Revolving Credit Facility, the “Credit Facilities”).
The principal of the Revolving Credit Facility is due asaballoon payment of $45.0 million in March 2030. The principal of the Term Loan is due in the amount of $0.6 million quarterly and a balloon payment of $13.1 million in March 2030.
Borrowings under the Credit Facilities will accrue interest at rates equal, at our election, to (i) the alternate base rate, which is defined as the highest of (a) the federal funds effective rate in effect from time to time plus 0.50%, (b) the prime commercial lending rate in effect from time to time, and (c) the daily simple secured overnight financing rate (“SOFR”) plus 1.00% or (ii) SOFR, plus, in each case, the applicable margin. The applicable margin for the Revolving Credit Facility borrowings bearing interest at the alternate base rate ranges from 1.00% to 1.75%, and the applicable margin for Revolving Credit Facility borrowings bearing interest based on the SOFR ranges from 2.00% to 2.75%, in each case, based on our consolidated total net leverage ratio as of the most recently ended fiscal quarter. The applicable margin for Term Loan borrowings bearing interest at the alternate base rate ranges from 1.00% to 1.75%, and the applicable margin for Term Loan borrowings bearing interest based on the SOFR ranges from 2.00% to 2.75%, in each case, based on our consolidated total net leverage ratio as of the most recently ended fiscal quarter. We will pay an annual commitment fee during the term of the Credit Agreement at a rate per annum equal to 0.50% for any undrawn portion of the Revolving Credit Facility.
The Credit Agreement contains customary representations and warranties, as well as customary affirmative and negative covenants. Negative covenants include, among others, restrictions on the incurrence of debt, the incurrence of liens, the making of investments and distributions, dividends, and stock buy-backs. In addition, the Credit Agreement requires that we maintain a consolidated total net leverage ratio of not greater than 3.00 to 1.00, and a consolidated fixed charge coverage ratio of not less than 1.25 to 1.00. As of September 30, 2025, we were in compliance with the covenants contained in the Credit Agreement.
The Credit Agreement contains customary events of default. Upon the occurrence and during the continuance of an event of default, the Agent may declare the outstanding advances and all other obligations under the Credit Agreement immediately due and payable.
The obligations under the Credit Agreement are guaranteed by all present and future material domestic subsidiaries of the Company (collectively with the Company referred to herein as the “Credit Parties”), subject to customary exceptions, and are secured by the equity interests of the Credit Parties (other than the Company) and substantially all of the personal property owned by the Credit Parties, including 65% of the equity interests of certain foreign subsidiaries owned by the Credit Parties.
The Company used the amounts borrowed under the Credit Facilities to finance, in part, the purchase price paid for the acquisition of SecureWise.
Repurchase of Company’s Common Stock
On April 15, 2024, the Board of Directors adopted a stock repurchase program (the “2024 Program”) to repurchase up to $40.0 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 from the adoption date. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors. The 2024 Program does not obligate the Company to acquire a minimum amount of shares and may be modified, suspended or terminated without prior notice. During the nine months ended September 30, 2025, 12,500 shares were repurchased by the Company under the 2024 Program at an average price of $19.55 per share for an aggregate total price of $0.2 million. During the nine months ended September 30, 2024, the Company did not repurchase any shares under the 2024 Program. As of September 30, 2025, approximately $39.8 million remained available under the 2024 Program authorization.
Cash Flow Data
The following table summarizes our cash flows for the periods presented:
| (In thousands) | Nine Months EndedSeptember 30, 2025 | Nine Months EndedSeptember 30, 2024 | $ Change |
|---|---|---|---|
| Net cash flows provided by (used in): | |||
| Operating activities | $6,712 | $8,097 | $(1,385) |
| Investing activities | (127,570) | 188 | (127,758) |
| Financing activities | 65,453 | (10,908) | 76,361 |
| Effect of exchange rate changes on cash and cash equivalents | 691 | 73 | 618 |
| Net change in cash and cash equivalents | $(54,714) | $(2,550) | $(52,164) |
Net Cash Flows Provided by Operating Activities
Cash flows provided by operating activities during the nine months ended September 30, 2025, consisted of a 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, accretion of unguaranteed residual assets, and net change in operating assets and liabilities.
Net cash flows provided by operating activities were $6.7 million for the nine months ended September 30, 2025, compared to net cash flows provided by operating activities of $8.1 million for the nine months ended September 30, 2024. The decrease in net cash flows provided by operating activities between the periods was primarily driven by (i) an increase in bonus payments under the Company’s bonus plan, (ii) increases in payments of personnel-related costs and vendor invoices, including business acquisition-related costs, and (iii) payments of interest related to bank loans, partially offset by higher collections from customers.
Net Cash Flows Provided by (Used in) Investing Activities
Net cash flows used in investing activities were $127.6 million for the nine months ended September 30, 2025, compared to net cash flows provided by investing activities of $0.2 million for the nine months ended September 30, 2024.
For the nine months ended September 30, 2025, net cash flows used in investing activities primarily related to $129.7 million payments for the acquisition of SecureWise, net of cash acquired and $23.1 million purchases and prepayments of property and equipment primarily related to our DFI systems, partially offset by $24.6 million proceeds from maturities and sales, net of purchases of short-term investments, and $0.6 million recovery from previously written-off property and equipment.
For the nine months ended September 30, 2024, net cash flows provided by investing activities primarily related to proceeds from maturities and sales of short-term investments of $57.1 million, partially offset by purchases of short-term investments of $43.1 million, purchases of property and equipment of $11.9 million primarily related to our DFI systems, and purchase of a convertible promissory note of $2.0 million.
Net Cash Flows Provided by (Used in) Financing Activities
Net cash flows provided by financing activities were $65.5 million for the nine months ended September 30, 2025, compared to net cash flows used in financing activities of $10.9 million for the nine months ended September 30, 2024.
For the nine months ended September 30, 2025, net cash flows provided by financing activities primarily consisted of $69.6 million proceeds from long-term debt, net of debt discount, that was used in financing the acquisition of SecureWise, and $4.2 million proceeds from our employee stock purchase plan and exercise of stock options, partially offset by (i) $5.9 million in cash payments for taxes related to net share settlement of equity awards, (ii) $1.3 million repayment of long-term debt, (iii) $0.9 million payments of debt issuance costs, and (iv) $0.2 million repurchases of our common stock.
For the nine months ended September 30, 2024, net cash flows used in financing activities primarily consisted of $8.2 million in cash payments for taxes related to net share settlement of equity awards, repurchases of common stock of $6.9 million, partially offset by $4.2 million of proceeds from our employee stock purchase plans and exercise of stock options.
Related Party Transactions
Refer to Note 13, Strategic Partnership Agreement with Advantest and Related Party Transactions, to our condensed consolidated financial statements in this Quarterly Report on Form 10‑Q, for the discussion about related party transactions between the Company and Advantest (as defined therein).
Off-Balance Sheet Agreements
As of September 30, 2025, we do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The following discusses our exposure to market risk related to changes in interest rates and foreign currency exchange rates. We do not currently own any equity investments, nor do we expect to own any in the foreseeable future. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors.
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and long-term debt as described below.
As of September 30, 2025, we had cash, cash equivalents and short-term investments of $35.9 million. Cash and cash equivalents consisted of cash and highly liquid money market instruments and short-term investments consisted of U.S. Government securities. We would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our portfolio. A hypothetical increase in market interest rates of 100 basis points from the market rates in effect as of September 30, 2025, would cause the fair value of these investments to decrease by an immaterial amount which would not have significantly impacted our financial position or results of operations.
As of September 30, 2025, and periodically throughout the year, we have maintained cash balances in various operating accounts in excess of federally insured limits. We limit the amount of credit exposure to any financial institution by evaluating the creditworthiness of the financial institutions with which we invest and investing through more than one financial institution.
We are exposed to interest rate risk through our variable rate debt. As of September 30, 2025, we had $68.8 million of debt that is subject to variable interest rates that are based on the daily simple secured overnight financing rate (“SOFR”) or an alternate base rate. Refer to Note 5 – Debt for details relating to the debt. If the rates were to increase by 100 basis points from the rates in effect as of September 30, 2025, our interest expense on the variable rate debt would increase by an average of $0.5 million annually. There are inherent limitations in the sensitivity analysis presented, primarily due to the assumptions that interest rate changes would be instantaneous, while SOFR changes regularly. We do not currently hedge our interest rate risks but may determine to do so in the future. We will continue to monitor our exposure to interest rate risk.
Foreign Currency and Exchange Risk. Certain of our cash balances, receivables and payables for our international offices are denominated in the local currency, including the Euro, Yen, Chinese Yuan, New Taiwan Dollar, and Canadian Dollar. Therefore, some of our activities including a portion of our revenues and operating expenditures are subject to foreign currency risks. We also have intercompany transactions with and between certain of our subsidiaries of differing functional currencies, resulting in foreign transaction gains or losses based on our period-end exchange rates. Due to potential volatility of currency exchange rates, we cannot predict the effect of exchange fluctuations on our business. To date, we have not entered into any foreign currency exchange contracts and currently do not expect to enter into foreign currency exchange contracts for trading or speculative purposes.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial and accounting officer, evaluated the effectiveness of our “disclosure controls and procedures” as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e) as of September 30, 2025, in connection with the filing of this Quarterly Report on Form 10‑Q. Based on that evaluation as of September 30, 2025, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.
On March 7, 2025, we completed the acquisition of SecureWise. SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from management’s assessment of internal control over financial reporting for a period not to exceed one year from the date of the acquisition. Accordingly, management has not assessed SecureWise internal control over financial reporting as of September 30, 2025.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in the Company’s internal control over financial reporting during the nine months ended September 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Refer to Note 12, Commitments and Contingencies to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q, for information regarding our legal proceedings.
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 27, 2025. Any of such factors could result in a significant or material adverse effect on our results of operations or financial conditions. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Repurchase of Shares of Company Equity Securities
On April 15, 2024, the Board of Directors adopted a stock repurchase program (the “2024 Program”) to repurchase up to $40.0 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 from the adoption date. The table below sets forth the information with respect to purchases made under the 2024 Program by or on behalf of the Company or any “affiliated purchaser” (as the term is defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the three months ended September 30, 2025.
| Period | Total · Number of · Shares · Purchased(in thousands) | Average · Price PaidPer Share | Total Number · of Shares · Purchased · as Part of · Publicly · Announced · Programs(in thousands) | Approximate · Dollar · Value of · Shares that · May Yet Be · Purchased · Under the · Programs(in thousands) |
|---|---|---|---|---|
| July 1, 2025 through July 31, 2025 | — | — | — | $40,000 |
| August 1, 2025 through August 31, 2025 | — | — | — | $40,000 |
| September 1, 2025 through September 30, 2025 | 13 | $19.55 | — | $39,756 |
| Total | 13 | — | — |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Insider Adoption or Termination of Trading Arrangements
During the quarter ended September 30, 2025, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.
| Exhibit Number | Exhibit Description | Incorporated by ReferenceForm | Incorporated by ReferenceFiling Date | Incorporated by ReferenceExhibit Number | SEC File No. | Provided Herewith |
|---|---|---|---|---|---|---|
| 3.01 | Third Amended and Restated Certificate of Incorporation of PDF Solutions, Inc., and Certificate of Amendment to Third Amended and Restated Certificate of Incorporation of PDF Solutions, Inc. | 10-Q | 8/8/2024 | 3.01 | 000-31311 | |
| 3.02 | Amended and Restated Bylaws of PDF Solutions, Inc. | 8-K | 5/1/2019 | 3.1 | 000-31311 | |
| 31.01 | Certification of the principal executive officer pursuant to Exchange Act Rules 13a‑14(a) and 15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||
| 31.02 | Certification of the principal financial and accounting officer pursuant to Exchange Act Rules 13a‑14(a) and 15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||
| 32.01 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | X | ||||
| 32.02 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | X | ||||
| 101 | The following financial statements from the Company’s Quarterly Report on Form 10‑Q for the quarter ended September 30, 2025, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | X | ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
- Furnished, and not filed.
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