SEC Filing | PDF Solutions

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): August 10, 2021

PDF SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

000-31311

(Commission File Number)


Delaware	25-1701361
(State or Other Jurisdiction of Incorporation)	(I.R.S. Employer Identification No.)

2858 De La Cruz Boulevard

Santa Clara, CA 95050

(Address of principal executive offices, with zip code)

(408) 280-7900

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Exchange Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00015 par value	PDFS	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Table of Contents

TABLE OF CONTENTS

Item 2.02. Results of Operations and Financial Condition

Item 9.01. Financial Statements and Exhibits

SIGNATURES

Table of Contents

Item 2.02. Results of Operations and Financial Condition.

On Dated: August 10, 2021 PDF Solutions (the “Company”) issued a press release regarding its financial results and certain other information related to the second quarter ended June 30, 2021. The Company also posted on the Investors section of its website (www.pdf.com) a management report with regard to the second quarter ended June 30, 2021. Copies of the press release and management report are attached to this report as Exhibit 99.1 and 99.2, respectively. Information on the website is not, and will not be deemed, a part of this report or incorporated into any other filings the Company makes with the Securities and Exchange Commission.

The information in this Item 2.02, including Exhibits 99.1 and 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that Section, and shall not be deemed incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Table of Contents

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.		Description
99.1		Press Release dated August 10, 2021, regarding financial results and certain other information related to the second quarter ended June 30, 2021.

99.2		Management Report by PDF Solutions, Inc. as of August 10, 2021.

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	PDF SOLUTIONS, INC. (Registrant)

	By:	/s/ Adnan Raza
		Adnan Raza
		EVP, Finance, and Chief Financial Officer (principal financial and accounting officer)

Dated: August 10, 2021

Exhibit 99.1

2858 De La Cruz Boulevard, Santa Clara CA 95050 USA

+1.408.280.7900 www.pdf.com

News Release


Company Contacts:
Adnan Raza	Sonia Segovia	Joe Diaz, Robert Blum, Joe Dorame
Chief Financial Officer	IR Coordinator	Lytham Partners, LLC
Tel: (408) 516-0237	Tel: (408) 938-6491	Tel: (602) 889-9700
Email: adnan.raza@pdf.com	Email: sonia.segovia@pdf.com	Email: pdfs@lythampartners.com

PDF Solutions® Reports Second Quarter 2021 Results

Business Highlights

●

Total revenues of $27.4 million for the second quarter of 2021, up 28% over the second quarter of 2020

●

Analytics revenue of $19.6 million for the second quarter, up 29% over the second quarter of 2020

●

Bookings for first half of 2021 up approximately 60% compared to the first half of 2020

●

Backlog ending Q2 2021 up 118% to $138.6 million compared to backlog as of June 30, 2020

●

GAAP Gross Margin of 61% for the second quarter of 2021

●

Non-GAAP Gross Margin of 63% for the second quarter of 2021

●

Operating activities provided $8.1 million in cash during the second quarter of 2021

●

Ended the quarter with cash, cash equivalents, and short-term investments of $139.2 million

●

Expect total revenues for calendar year 2021 to grow between 20-25% compared to calendar year 2020

●

Expect Analytics revenue for calendar year 2021 to grow more than 30% compared to calendar year 2020

SANTA CLARA, Calif. — Tuesday, August 10, 2021 — PDF Solutions, Inc. (Nasdaq: PDFS), a leading provider of comprehensive data solutions for the semiconductor ecosystem, today announced financial results for its second quarter ended June 30, 2021.

Highlights of Second Quarter 2021 Financial Results

Total revenues for the second quarter of 2021 were $27.4 million, compared to $24.2 million for the first quarter of 2021 and $21.4 million for the second quarter of 2020. Analytics revenue for the second quarter of 2021 was $19.6 million, compared to $19.4 million for the first quarter of 2021 and $15.2 million for the second quarter of 2020. Integrated Yield Ramp revenue for the second quarter of 2021 was $7.8 million, compared to $4.8 million for first quarter of 2021 and $6.2 million for the second quarter of 2020.

GAAP gross margin for the second quarter of 2021 was 61%, compared to 56% for the first quarter of 2021 and 58% for the second quarter of 2020.

Non-GAAP gross margin for the second quarter of 2021 was 65%, compared to 61% for the first quarter of 2021 and 63% for the second quarter of 2020.

PDF Solutions® Reports Second Quarter 2021 Results

On a GAAP basis, net loss for the second quarter of 2021 was $4.5 million, or $(0.12) per basic and diluted share, compared to a net loss of $7.6 million, or $(0.21) per basic and diluted share, for the first quarter of 2021, and compared to a net loss of $3.7 million, or $(0.11) per basic and diluted share, for the second quarter of 2020.

Non-GAAP net loss for the second quarter of 2021 was $0.3 million, or $(0.01) per diluted share, compared to a net loss of $1.9 million, or $(0.05) per diluted share, for the first quarter of 2021, and compared to net income of $0.5 million, or $0.01 per diluted share, for the second quarter of 2020.

Cash, cash equivalents and short-term investments at June 30, 2021, were $139.2 million, compared to $145.3 million at December 31, 2020, a decrease of ($6.1) million. Cash provided by operating activities was $8.1 million during the three months ended June 30, 2021.

Conference Call

As previously announced, PDF Solutions will discuss these results on a live conference call beginning at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time today. The call will be simultaneously webcast on PDF Solutions’ website at http://ir.pdf.com/webcasts. A replay of the webcast will be available at the same website address beginning approximately two hours after completion of the live call. A copy of this press release, including the disclosure and reconciliation of certain non-GAAP financial measures to the comparable GAAP measures, which non-GAAP measures may be used periodically by PDF Solutions’ management when discussing financial results with investors and analysts, will also be available on PDF Solutions’ website at http://www.pdf.com/press-releases following the date of this release.

Second Quarter 2021 Financial Commentary Available Online

A Management Report reviewing the Company’s second quarter 2021 financial results will be furnished to the Securities and Exchange Commission on Form 8-K and published on the Company’s website at http://ir.pdf.com/financial-reports. Analysts and investors are encouraged to review this commentary prior to participating in the conference call.

PDF Solutions® Reports Second Quarter 2021 Results

Information Regarding Use of Non-GAAP Financial Measures

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

Forward-Looking Statements

The press release and the planned conference call may include forward-looking statements regarding the Company’s future expected business performance and financial results, including expectations for analytics and total revenues, that are subject to future events and circumstances. Actual results could differ materially from those expressed in these forward-looking statements. Risks and uncertainties that could cause results to differ materially include risks associated with: customers’ production volumes under contracts that provide Gainshare royalties, cost and schedule of new product development; continued adoption of the Company’s solutions by new and existing customers; project milestones or delays and performance criteria achieved; the provision of technology and services prior to the execution of a final contract; the continuing impact of the coronavirus (COVID-19) on the semiconductor industry and on the Company’s operations or demand for the Company’s products; the time required of the Company’s executive management for, and the expenses related to, as well as the success of the Company’s strategic growth opportunities and partnerships, including its partnership with Advantest Corporation; our ability to successfully integrate the acquired businesses and technologies; and other risks set forth in PDF Solutions’ periodic public filings with the Securities and Exchange Commission, including, without limitation, its Annual Reports on Form 10-K, most recently filed for the year ended December 31, 2020, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K and amendments to such reports. The forward-looking statements made in the conference call are made as of the date hereof, and PDF Solutions does not assume any obligation to update such statements nor the reasons why actual results could differ materially from those projected in such statements.

About PDF Solutions

PDF Solutions (NASDAQ: PDFS) provides comprehensive data solutions designed to empower organizations across the semiconductor ecosystem to improve the yield and quality of their products and operational efficiency for increased profitability. The company’s products and services are used by Fortune 500 companies across the semiconductor ecosystem to achieve smart manufacturing goals by connecting and controlling equipment, collecting data generated during manufacturing and test operations, and performing advanced analytics and machine learning to enable profitable, high-volume manufacturing.

Founded in 1991, PDF Solutions is headquartered in Santa Clara, California, with operations across Europe and Asia. The company (directly or through one or more subsidiaries) is an active member of SEMI, INEMI, TPCA, IPC, the OPC Foundation, and DMDII. For the latest news and information about PDF Solutions or to find office locations, visit http://www.pdf.com/.

PDF Solutions and the PDF Solutions logo are trademarks or registered trademarks of PDF Solutions, Inc. or its subsidiaries.

PDF Solutions® Reports Second Quarter 2021 Results

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands)


	June 30,		December 31,
	2021		2020

ASSETS
Current assets:
Cash and cash equivalents	$	87,201	$	30,315
Short-term investments		51,993		114,981
Accounts receivable, net		30,128		34,140
Prepaid expenses and other current assets		12,715		13,944
Total current assets		182,037		193,380
Property and equipment, net		37,977		39,242
Operating lease right-of-use assets, net		5,928		6,672
Goodwill		15,305		15,774
Intangible assets, net		22,875		24,573
Deferred tax assets, net		176		249
Other non-current assets		9,372		7,690
Total assets	$	273,670	$	287,580

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,078	$	4,399
Accrued compensation and related benefits		7,278		8,339
Accrued and other current liabilities		5,913		6,309
Operating lease liabilities ‒ current portion		1,770		1,926
Deferred revenues ‒ current portion		15,946		19,895
Billings in excess of recognized revenues		2,185		1,337
Total current liabilities		40,170		42,205
Long-term income taxes payable		2,718		2,956
Non-current operating lease liabilities		5,832		6,516
Other non-current liabilities		1,826		1,397
Total liabilities		50,546		53,074

Stockholders’ equity:
Common stock and additional paid-in-capital		415,069		407,179
Treasury stock at cost		(103,088)		(96,215)
Accumulated deficit		(88,314)		(76,233)
Accumulated other comprehensive loss		(543)		(225)
Total stockholders’ equity		223,124		234,506
Total liabilities and stockholders’ equity	$	273,670	$	287,580

PDF Solutions® Reports Second Quarter 2021 Results

PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share amounts)


	Three months ended						Six months ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2021 (1)		2021 (1)		2020		2021		2020

Revenues:
Analytics (1)	$	19,578	$	19,393	$	15,172	$	38,971	$	28,420
Integrated yield ramp		7,841		4,807		6,237		12,648		14,147
Total revenues		27,419		24,200		21,409		51,619		42,567

Costs and Expenses:
Costs of revenues		10,785		10,663		8,946		21,448		17,433
Research and development		11,064		10,841		7,754		21,905		16,344
Selling, general and administrative		9,410		9,464		7,737		18,874		15,632
Amortization of other acquired intangible assets		313		314		174		627		347
Interest and other expense (income), net		243		(441)		150		(198)		170
Loss before income taxes		(4,396)		(6,641)		(3,352)		(11,037)		(7,359)
Income tax expense (benefit)		88		956		300		1,044		(3,179)
Net loss	$	(4,484)	$	(7,597)	$	(3,652)	$	(12,081)	$	(4,180)



Net loss per share, basic and diluted	$	(0.12)	$	(0.21)	$	(0.11)	$	(0.33)	$	(0.13)

Weighted average common shares used to calculate net loss per share, basic and diluted		37,004		36,974		32,886		36,989		32,795

(1)	Analytics revenue includes revenue from Cimetrix Incorporated, a wholly owned subsidiary acquired by the Company in December 2020.

PDF Solutions® Reports Second Quarter 2021 Results

PDF SOLUTIONS, INC.

RECONCILIATION OF GAAP GROSS MARGIN TO NON-GAAP GROSS MARGIN (UNAUDITED)

(In thousands)


	Three months ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2021			2021			2020			2021			2020
GAAP
Total revenues	$	27,419		$	24,200		$	21,409		$	51,619		$	42,567
Costs of revenues		10,785			10,663			8,946			21,448			17,433
GAAP gross profit	$	16,634		$	13,537		$	12,463		$	30,171		$	25,134
GAAP gross margin		61	%		56	%		58	%		58	%		59	%


Non-GAAP
GAAP gross profit	$	16,634		$	13,537		$	12,463		$	30,171		$	25,134
Adjustments to reconcile GAAP to non-GAAP gross margin:
Stock-based compensation expense		538			652			883			1,190			1,792
Amortization of acquired technology		536			535			143			1,071			287
Non-GAAP gross profit	$	17,708		$	14,727		$	13,489		$	32,432		$	27,213
Non-GAAP gross margin		65	%		61	%		63	%		63	%		64	%

PDF Solutions® Reports Second Quarter 2021 Results

PDF SOLUTIONS, INC.

RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET LOSS (UNAUDITED)

(In thousands, except per share amounts)


	Three months ended						Six months ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2021		2021		2020		2021		2020
GAAP net loss	$	(4,484)	$	(7,597)	$	(3,652)	$	(12,081)	$	(4,180)
Adjustments to reconcile GAAP net loss to non-GAAP net loss:
Stock-based compensation expense		2,742		3,369		2,978		6,111		6,346
Amortization of acquired technology		536		535		143		1,071		287
Amortization of other acquired intangible assets		314		314		174		628		347
Expenses of arbitration (1)		558		295		363		853		464
Write-down in value of property and equipment		—		—		311		—		311
Tax impact of reconciling items		—		—		167		—		(976)
Tax impact of the CARES Act (2)		—		—		—		—		(2,261)
Tax impact of valuation allowance for deferred tax assets (3)		52		1,166		—		1,218		—
Non-GAAP net (loss) income	$	(282)	$	(1,918)	$	484	$	(2,200)	$	338

GAAP net loss per diluted share	$	(0.12)	$	(0.21)	$	(0.11)	$	(0.33)	$	(0.13)
Non-GAAP net (loss) income per diluted share	$	(0.01)	$	(0.05)	$	0.01	$	(0.06)	$	0.01

Shares used in net (loss) income per diluted share calculation		37,004		36,974		33,874		36,989		33,718

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

(2)

The Company recognized a discrete tax benefit recognized from the carryback of net operating losses (NOLs) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020. The Company does not have any NOLs on a non-GAAP basis and, therefore, it did not recognize this discrete tax benefit in calculating its non-GAAP tax expense and net loss.

(3)

The Company's GAAP tax expense is higher year-to-date compared to the non-GAAP tax expense, primarily due to the GAAP full U.S. federal and state valuation allowances. The Company's non-GAAP tax rate and resulting non-GAAP tax expense is not calculated with a full US federal or state valuation allowance due to the Company’s forecasted Non-GAAP income and management’s conclusion that it will be able to more likely than not to utilize its net DTAs. Each reporting period, management evaluates the need for a valuation allowance and may place a valuation allowance against its US net deferred tax assets (DTA) on a non-GAAP basis if it concludes it is more likely than not that it will not be able to utilize some or all of its US DTAs on a non-GAAP basis.

Exhibit 99.2

Q2 2021

Management Report

August 10, 2021

Contents

■

Q2 2021 Results

– Overview

– Key Financial & Operating Metrics

– Revenue by Geographic Area

■

Q2 2021 Non-GAAP Results

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

– Reconciliation of GAAP to Non-GAAP Spending by Function

■

Related Information

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

PDF Solutions Reports Second Quarter 2021 Results

Q2 2021 Key Metrics	financial results Summary
Revenue: $27.4M
GAAP Gross Margin: 61%	■ Q2 2021 Total revenues of $27.4M, up 13% over Q1 2021, and up 28% over Q2 2020. ■ Q2 2021 Analytics revenue of $19.6M, up 1% over Q1 2021, and up 29% over Q2 2020. ■ Q2 2021 Integrated yield ramp revenue of $7.8M, up 63% over Q1 2021 and up 26% over Q2 2020.
Non-GAAP Gross Margin: 65%
GAAP EPS: ($0.12)
Non-GAAP EPS: ($0.01)
Operating Cash Flow: $8.1M
Capital Expenditures: $0.5M

Key Financial & Operating Metrics – Quarterly

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


	Q2’21	Q1’21	Q4’20	Q3’20
Revenues	$ 27,419	$ 24,200	$ 22,367	$ 23,112
GAAP Gross Margin	61%	56%	56%	59%
Non-GAAP Gross Margin	65%	61%	61%	63%
Outstanding Debt	$0	$0	$0	$0
Operating Cash Flow	$ 8,130	($ 8,325)	$ 10,908	$ 245
Capital Expenditures (CAPEX)	$ 535	$ 586	$ 1,603	$ 1,425
$ Shares Repurchased	$ 0	$ 4,523	$ 0	$ 0
Weighted Average Common Shares Outstanding	37.0	37.0	36.7	35.5
Effective Tax Rate Benefit (Expense)	(2)%	(14)%	(375)%	25%

Key Financial & Operating Metrics – Year to Date

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


	Six Months Ended June 30,
	2021	2020	2019
Revenues	$ 51,619	$ 42,567	$ 41,109
GAAP Gross Margin	58%	59%	62%
Non-GAAP Gross Margin	63%	64%	67%
Outstanding Debt	0%	0%	0%
Operating Cash Flow	($195)	$10,630	$4,966
Capital Expenditures (CAPEX)	$ 1,121	$ 3,940	$ 4,054
$ Shares Repurchased	$ 4,523	$ -	$ 7,706
Weighted Average Common Shares Outstanding	37.0	32.8	32.4
Effective Tax Rate Benefit (Expense)	(9)%	43%	22%

Revenue by Geographic Area – Quarterly

(Dollars in thousands)


	Q2’21	Q1’21	Q4’20	Q3’20	Q2’20
North America	$ 12,211	$ 8,608	$ 10,525	$ 7,754	$ 9,969
% of Total	45%	35%	47%	34%	46%
Europe	$ 3,958	$ 4,331	$ 3,602	$ 3,581	$ 3,983
% of Total	14%	18%	16%	15%	19%
APAC	$ 11,250	$ 11,261	$ 8,240	$ 11,777	$ 7,457
% of Total	41%	47%	37%	51%	35%
Total revenues	$ 27,419	$ 24,200	$ 22,367	$ 23,112	$ 21,409

Revenue by Geographic Area – Year to Date

(Dollars in thousands)


	Six Months Ended June 30,
	2021	2020	2019
North America	$ 20,819	$ 18,656	$ 17,996
% of Total	40%	44%	44%
Europe	$ 8,289	$ 7,544	$ 6,745
% of Total	16%	18%	16%
APAC	$ 22,511	$ 16,367	$ 16,368
% of Total	44%	38%	40%
Total revenues	$ 51,619	$ 42,567	$ 41,109

GAAP / Non-GAAP Presentation

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

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


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


	Q2’21	Q1’21	Q4’20	Q3’20
GAAP net loss	($ 4,484)	($ 7,597)	($ 33,449)	($ 2,734)
Adjustments to reconcile GAAP net loss to non-GAAP net (loss) income:
Stock-based compensation expense	2,742	3,369	2,987	3,130
Amortization of acquired technology	536	535	274	144
Amortization of other acquired intangible assets	314	314	220	174
Expenses of arbitration (1)	558	295	268	366
Acquisition-related costs (2)		—	752	—
Write-down in value of property and equipment	—	—	179	—
Tax impact of reconciling items (3)	—	—	1,931	(955)
Tax impact of the CARES Act (4)	—	—	1,099	—
Tax impact of valuation allowance for deferred tax assets (5)	52	1,166	24,471	—
Non-GAAP net (loss) income	($ 282)	($ 1,918)	($ 1,268)	$ 125
GAAP net (loss) income per diluted share	($ 0.12)	($ 0.21)	($ 0.91)	($ 0.08)
Non-GAAP net (loss) income per diluted share	($ 0.01)	($ 0.05)	($ 0.03)	$ -
Shares used in net (loss) income per diluted shares calculation	37,004	36,974	36,727	36,661

(1)

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

(2)

Represents transaction expenses related to the acquisition of Cimetrix Incorporated in the fourth quarter of 2020.

(3)

Tax impact of reconciling items for the fourth quarter of 2020 pertains to the reversal of prior quarters’ tax impact due to a full valuation allowance recognized against the U.S. deferred tax assets (DTA) on a GAAP basis. The above reconciling items do not have any tax expense or benefit on a GAAP basis for the year ended December 31, 2020 due to the full valuation allowance offsetting any tax impact from reconciling items.

(4)

The Company recognized a discrete tax benefit recognized from the carryback of net operating losses (NOLs) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020. Due to the full valuation allowance against U.S. DTA recognized in the fourth quarter of 2020, there is no tax benefit from the released tax attributes. The Company does not have any NOLs on a non-GAAP basis and, therefore, it did not recognize this discrete tax benefit in calculating its non-GAAP tax expense and net income (loss).

(5)

The Company's GAAP tax expense is higher year-to-date compared to the non-GAAP tax expense, primarily due to the GAAP full U.S. federal and state valuation allowances. The Company's non-GAAP tax rate and resulting non-GAAP tax expense is not calculated with a full US federal or state valuation allowance due to recent cumulative profit on a non-GAAP basis. Each reporting period, management evaluates the need for a valuation allowance and may place a valuation allowance against its US net deferred tax assets (DTA) on a non-GAAP basis if it concludes it is more likely than not that it will not be able to utilize some or all of its US DTAs on a non-GAAP basis.

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


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


	Six Months Ended June 30,
	2021	2020	2019
GAAP net loss	($ 12,081)	($ 4,180)	($ 3,401)
Adjustments to reconcile GAAP net loss to non-GAAP net loss:
Stock-based compensation expense	6,111	6,346	5,910
Amortization of acquired technology	1,071	287	287
Amortization of other acquired intangible assets	628	347	262
Expenses of arbitration (1)	853	464	—
Write-down in value of property and equipment	—	311	—
Restructuring charges and severance payment	—	—	92
Tax impact of reconciling items	—	(976)	(1,280)
Tax impact of the CARES Act (2)	—	(2,261)	—
Tax impact of valuation allowance for deferred tax assets (3)	1,218	—	—
Non-GAAP net (loss) income	(2,200)	338	1,870
GAAP net loss per diluted share	($ 0.33)	($ 0.13)	($ 0.10)
Non-GAAP net (loss) income per diluted share	($ 0.06)	$ 0.01	$ 0.06
Shares used in diluted shares calculation	36,989	33,718	32,795

(1)

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

(2)

The Company recognized a discrete tax benefit recognized from the carryback of net operating losses (NOLs) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020. Due to the full valuation allowance against U.S. DTA recognized in the fourth quarter of 2020, there is no tax benefit from the released tax attributes. The Company does not have any NOLs on a non-GAAP basis and, therefore, it did not recognize this discrete tax benefit in calculating its non-GAAP tax expense and net income (loss).

(3)

The Company's GAAP tax expense is higher year-to-date compared to the non-GAAP tax expense, primarily due to the GAAP full U.S. federal and state valuation allowances. The Company's non-GAAP tax rate and resulting non-GAAP tax expense is not calculated with a full US federal or state valuation allowance due to recent cumulative profit on a non-GAAP basis. Each reporting period, management evaluates the need for a valuation allowance and may place a valuation allowance against its US net deferred tax assets (DTA) on a non-GAAP basis if it concludes it is more likely than not that it will not be able to utilize some or all of its US DTAs on a non-GAAP basis.

Reconciliation of GAAP to Non-GAAP Spending by Function

Quarterly


	(in thousands)
	Q2’21	Q1’21	Q4’20	Q3’20	Q2’20

Cost of Revenue - GAAP	$10,785	$ 10,663	$ 9,839	$ 9,493	$ 8,946
Adjustments to reconcile GAAP Cost of Revenue to non-GAAP Cost of Revenue:
Stock-based compensation expense	(538)	(652)	(872)	(790)	(883)
Amortization of acquired technology	(536)	(535)	(274)	(144)	(143)
Cost of Revenue - Non-GAAP	$ 9,711	$9,476	$8,693	$8,559	$7,920

Research & Development - GAAP	$ 11,064	$10,841	$9,981	$8,328	$7,754
Adjustments to reconcile GAAP R&D to non-GAAP R&D:
Stock-based compensation expense	(1,126)	(1,588)	(1,187)	(1,148)	(1,010)
Write-down in value of property and equipment	—	—	(179)	—	(149)
Research & Development - Non-GAAP	$ 9,938	$9,253	$8,615	$7,180	$6,595

Selling, General, & Administrative - GAAP	$9,410	$9,464	$8,625	$8,420	$7,737
Adjustment to reconcile GAAP SG&A to non-GAAP SG&A:
Stock-based compensation expense	(1,078)	(1,129)	(928)	(1,192)	(1,085)
Expenses of arbitration (1)	—	(295)	(268)	(366)	(363)
Acquisition-related costs (2)	—	—	(752)	—	—
Write-down in value of property and equipment	—	—	—	—	(162)
Selling, General, & Administrative - Non-GAAP	$ 8,332	$8,040	$6,677	$6,862	$6,127

(1)

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

(2)

Represents transaction expenses related to the acquisition of Cimetrix Incorporated in the fourth quarter of 2020.

Reconciliation of GAAP to Non-GAAP Spending by Function

Year to Date


	(in thousands)
	Six Months Ended June 30,
	2021	2020	2019

Cost of Revenue - GAAP	$ 20,848	$ 17,433	$ 15,699
Adjustments to reconcile GAAP Cost of Revenue to non-GAAP Cost of Revenue:
Stock-based compensation expense	(1,190)	(1,792)	(1,659)
Amortization of acquired technology	(1,071)	(287)	(287)
Restructuring charges and severance payment	—	—	—
Cost of Revenue - Non-GAAP	$ 18,587	$ 15,354	$ 13,753

Research & Development - GAAP	$ 21,905	$ 16,344	$ 15,558
Adjustments to reconcile GAAP R&D to non-GAAP R&D:
Stock-based compensation expense	(2,714)	(2,465)	(2,619)
Write-down in value of property and equipment	—	(149)	—
Research & Development - Non-GAAP	$ 19,191	$ 13,730	$ 12,939

Selling, General, & Administrative - GAAP	$ 18,874	$ 15,632	$ 13,951
Adjustment to reconcile GAAP SG&A to non-GAAP SG&A:
Stock-based compensation expense	(2,207)	(2,089)	(1,632)
Expenses of arbitration (1)	(295)	(464)	—
Write-down in value of property and equipment	—	(162)	—
Selling, General, & Administrative - Non-GAAP	$ 16,372	$ 12,917	$ 12,319

(1)

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