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): October 20, 2005

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		(I.R.S. Employer Identification No.)
Incorporation)

333 West San Carlos Street, Suite 700
San Jose, CA 95110
(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:

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02. Results of Operations and Financial Condition.

     On October 20, 2005, the Registrant issued a press release regarding its financial results and certain other information related to its third fiscal quarter ended September 30, 2005. A copy of the press release is attached hereto as Exhibit 99.1. The information in this Item 2.02, including Exhibit 99.1, is furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

Item 7.01. Regulation FD Disclosure.

     Also on October 20, 2005, the Registrant issued a press release regarding the financial outlook for the fourth fiscal quarter ending December 31, 2005 and the first fiscal quarter ending March 31, 2006. A copy of the press release is attached hereto as Exhibit 99.2. The information in this Item 7.01, including Exhibit 99.2, is furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits.

Exhibit No.		Description
99.1		Press Release dated October 20, 2005 regarding financial results and certain other information related to the third fiscal quarter ended September 30, 2005.
99.2		Press Release dated October 20, 2005 regarding the financial outlook for the fourth fiscal quarter ending December 31, 2005 and the first fiscal quarter ending March 31, 2006.

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.

Dated: October 20, 2005

EXHIBIT INDEX

Exhibit No.		Description
99.1		Press Release dated October 20, 2005 regarding financial results and certain other information related to the third fiscal quarter ended September 30, 2005.
99.2		Press Release dated October 20, 2005 regarding the financial outlook for the fourth fiscal quarter ending December 31, 2005 and the first fiscal quarter ending March 31, 2006.

Exhibit 99.1

News Release

Investor Relations Contact:		Corporate Communications Contact:
Sonia Segovia, IR Coordinator		Abbie Kendall, Principal
PDF Solutions, Inc.		Armstrong Kendall, Inc.
Tel: (408) 938-6491		Tel: (503) 672-4681
Email: sonia.segovia@pdf.com		Email: abbie@akipr.com

PDF Solutions^® Reports Record
Third Quarter 2005 Revenue

Record Gainshare Contributes to 11^th Sequential Quarter of Revenue Growth

     SAN JOSE, Calif.—October 20, 2005—PDF Solutions, Inc. (Nasdaq: PDFS) the leading provider of process-design integration technologies to enhance IC manufacturability, today announced financial results for its third fiscal quarter ended September 30, 2005.

     Revenue for the third fiscal quarter of 2005 totaled a record $18.5 million, an increase of 12%, compared with revenue of $16.5 million for the third fiscal quarter of 2004. Gainshare revenue for the third fiscal quarter of 2005 totaled a record $3.1 million, an increase of 28%, compared to the third fiscal quarter of 2004. On a GAAP basis, net income for the third fiscal quarter of 2005 totaled approximately $1.5 million, or $0.06 per diluted share, compared with net income of approximately $135,000, or $0.01 per diluted share, for the third fiscal quarter of 2004.

     In addition to using GAAP results in evaluating PDF Solutions’ business, management also believes it useful to measure results using a non-GAAP measure of net income or loss, which excludes amortization of stock-based compensation and acquired intangible assets. Using this non-GAAP measure, net income for the third fiscal quarter of 2005 totaled approximately $3.0 million, or $0.11 per diluted share, compared with non-GAAP net income of approximately $1.5 million, or $0.06 per diluted share, for the third fiscal quarter of 2004.

     As previously announced, PDF will hold a live conference call beginning at 3:00 p.m. Pacific Time/6:00 p.m. Eastern Time today to discuss these quarterly results. A live webcast of

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this conference call will be available on PDF Solutions’ website at http://ir.pdf.com/medialist.cfm. A replay of the call will be available at the same website address beginning approximately two hours after completion of the live call. Further, a copy of this press release, including the disclosure and reconciliation of certain non-GAAP financial measures to the most directly comparable GAAP measure, which non-GAAP measures may be used periodically by PDF Solutions’ management when discussing financial results with investors and analysts, will be available on PDF Solutions’ website at http://www.pdf.com/news_archive.phtml following the date of this release.

About PDF Solutions

PDF Solutions, Inc. (Nasdaq: PDFS) is the leading provider of process-design integration technologies for manufacturing integrated circuits (ICs). PDF Solutions’ software, methodologies and services enable semiconductor companies to create IC designs that can be more easily manufactured using manufacturing processes that are more capable. By simulating deep sub-micron product and process interactions, the PDF solution offers clients reduced time to market, increased IC yield and performance, and enhanced product reliability and profitability. Headquartered in San Jose, Calif., PDF Solutions operates worldwide with additional offices in Europe and Japan. For more information, visit www.pdf.com.

PDF Solutions^Ò is a registered trademark of PDF Solutions, Inc.

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PDF SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)

		September 30,				December 31,
		2005				2004
ASSETS
Current assets:
Cash and cash equivalents		$	59,341			$	45,660
Accounts receivable, net of allowances			17,627				15,978
Prepaid expenses and other current assets			2,399				2,685
Deferred tax assets			2,265				1,586
Total current assets			81,632				65,909
Property and equipment, net			3,525				3,321
Goodwill			39,886				39,886
Intangible assets, net			11,288				15,791
Other assets			448				500
Total assets		$	136,779			$	125,407
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,443			$	1,023
Accrued compensation and related benefits			4,296				3,209
Other accrued liabilities			1,767				2,593
Taxes payable			4,961				3,286
Deferred revenues			2,378				2,905
Billings in excess of recognized revenue			2,425				1,581
Total current liabilities			17,270				14,597
Long-term liabilities			272				311
Deferred tax liabilities			847				1,701
Total liabilities			18,389				16,609
Stockholders’ equity:
Common stock			4				4
Additional paid-in-capital			139,676				134,191
Treasury stock, at cost			(5,549	)			(4,806	)
Deferred stock-based compensation			(45	)			(148	)
Notes receivable from stockholders			—				(550	)
Accumulated deficit			(15,703	)			(19,975	)
Accumulated other comprehensive income			7				82
Total stockholders’ equity			118,390				108,798
Total liabilities and stockholders’ equity		$	136,779			$	125,407

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PDF SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)

		Three Months Ended								Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2005				2004				2005				2004
Revenue:
Design-to-silicon-yield solutions:
Integrated solutions.		$	13,834			$	13,224			$	38,658			$	36,082
Software licenses			1,533				812				8,179				3,162
Gain share			3,090				2,414				8,069				5,051
Total revenue			18,457				16,450				54,906				44,295
Cost and expenses:
Cost of design-to-silicon-yield solutions:
Direct costs of design-to-silicon-yield solutions:
Integrated solutions.			6,382				5,881				17,898				15,541
Software licenses			15				6				273				69
Amortization of acquired core technology			1,266				1,266				3,798				3,943
Research and development			5,474				4,940				16,465				14,980
Selling, general and administrative			3,971				3,801				12,174				11,220
Stock-based compensation amortization*			19				134				93				681
Amortization of other acquired intangible assets			235				351				705				1,171
Total costs and expenses			17,362				16,379				51,406				47,605
Income (loss) from operations			1,095				71				3,500				(3,310	)
Interest and other income, net			463				150				1,085				441
Income (loss) before taxes			1,558				221				4,585				(2,869	)
Tax provision (benefit)			22				86				313				(702	)
Net income (loss)		$	1,536			$	135			$	4,272			$	(2,167	)
Net income (loss) per share:
Basic		$	0.06			$	0.01			$	0.17			$	(0.09	)
Diluted		$	0.06			$	0.01			$	0.16			$	(0.09	)
Weighted average common shares:
Basic			26,101				25,293				25,887				25,310
Diluted			27,779				25,983				27,298				25,310
* Stock-based compensation amortization:
Cost of design-to-silicon-yield solutions		$	—			$	2			$	—			$	39
Research and development			11				130				85				606
Selling, general and administrative			8				2				8				36
		$	19			$	134			$	93			$	681

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PDF SOLUTIONS, INC.
RECONCILIATION OF REPORTED GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME
(UNAUDITED)
(In thousands, except per share amounts)

		Three Months Ended
		September 30,				September 30,
		2005				2004
GAAP net income		$	1,536			$	135
Stock-based compensation amortization			19				134
Amortization of intangibles, net of taxes			1,480				1,226
Non-GAAP net income		$	3,035			$	1,495
Non-GAAP net income per share —diluted		$	0.11			$	0.06
Weighted average common shares — diluted.			27,779				25,983

Use of Non-GAAP Information
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 that exclude certain charges as additional information relating to its operating results. PDF Solutions’ management believes that the presentation of these measures provides useful information to investors regarding certain additional financial and business trends relating to its financial condition and results of operations. PDF Solutions has also chosen to provide this information to investors to enable them to perform meaningful comparisons of PDF Solutions’ past, present and future operating results. These measures are not in accordance with, or an alternative to, GAAP and may be different from non-GAAP measures used by other companies. The calculations of non-GAAP financial measures have been adjusted to exclude the effects of amortization of stock-based compensation and acquired intangible assets.

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Exhibit 99.2

News Release

Investor Relations Contact:		Corporate Communications Contact:
Sonia Segovia, IR Coordinator		Abbie Kendall, Principal
PDF Solutions, Inc.		Armstrong Kendall, Inc.
Tel: (408) 938-6491		Tel: (503) 672-4681
Email: sonia.segovia@pdf.com		Email: abbie@akipr.com

PDF Solutions^® Provides Financial Outlook For
The Fourth Quarter of Fiscal 2005 and First
Quarter of Fiscal 2006

     SAN JOSE, Calif.—October 20, 2005—PDF Solutions, Inc. (Nasdaq: PDFS), the leading provider of process-design integration technologies to enhance IC manufacturability, today provided its updated financial outlook for the fourth fiscal quarter ending December 31, 2005 and the first fiscal quarter ending March 31, 2006, respectively.

     PDF Solutions expects total revenue in the range of $18.8 million to $19.6 million for the fourth fiscal quarter ending December 31, 2005. Gain share revenue for the fourth quarter is expected to be in the range of $3.1 million to $3.5 million. On a GAAP basis, net income for the fourth fiscal quarter of 2005 is projected in a range of $1.8 million to $2.4 million, or $0.06 to $0.08 per diluted share.

     For the first fiscal quarter ending March 31, 2006, PDF Solutions expects total revenue in the range of $20.5 million to $21.5 million. On a GAAP basis, net income for the first fiscal quarter of 2006 is projected in a range of $2.3 million to $2.9 million, or $0.08 to $0.10 per diluted share. GAAP net income for the three months ending March 31, 2006 excludes the effects of the adoption of SFAS 123(R), as management is currently evaluating its future impact.

     In addition to using GAAP results in evaluating PDF Solutions’ business, management also believes it useful to measure results using a non-GAAP measure of net income, which excludes amortization of stock-based compensation and acquired intangible assets and the effects of the adoption SFAS 123(R), where applicable. Non-GAAP net income for the fourth fiscal quarter ending December 31, 2005 is projected in a range of $3.0 million to $3.6 million, or

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$0.11 to $0.13 per diluted share. Non-GAAP net income for the first fiscal quarter ending March 31, 2006 is projected in a range of $3.4 million to $3.9 million, or $0.12 to $0.14 per diluted share.

     As previously announced, PDF will hold a live conference call beginning at 3:00 p.m. Pacific Time/6:00 p.m. Eastern Time today to discuss its third quarter 2005 results and financial outlook for the fourth fiscal quarter of 2005 and first fiscal quarter of 2006. A live webcast of this conference call will be available on PDF Solutions’ website at http://ir.pdf.com/medialist.cfm. A replay of the call will be available at the same website address beginning approximately two hours after completion of the live call. Further, a copy of this press release, including the disclosure and reconciliation of certain non-GAAP financial measures to the most directly comparable GAAP measure, which non-GAAP measures may be used periodically by PDF Solutions’ management when discussing financial results with investors and analysts, will be available on the company’s website at http://www.pdf.com/news_archive.phtml following the date of this release.

Effectiveness of Guidance
The outlook set forth above represents PDF Solutions’ expectations only as of the date of this release, and should not be viewed as a statement about PDF Solutions’ expectations after this date. Although this release will remain available on PDF Solutions’ website, its continued availability does not indicate that PDF Solutions is reaffirming or confirming its continued validity. PDF Solutions does not intend to report on its progress, or provide comments to analysts or investors on, or otherwise, update such guidance until it releases its quarterly results.

About PDF Solutions
PDF Solutions, Inc. (Nasdaq: PDFS) is the leading provider of process-design integration technologies for manufacturing integrated circuits (ICs). PDF Solutions’ software, methodologies and services enable semiconductor companies to create IC designs that can be more easily manufactured using manufacturing processes that are more capable. By simulating deep sub-micron product and process interactions, the PDF solution offers clients reduced time to market, increased IC yield and performance, and enhanced product reliability and profitability. Headquartered in San Jose, Calif., PDF Solutions operates worldwide with additional offices in Europe and Japan. For more information, visit www.pdf.com.

PDF Solutions^Ò is a registered trademark of PDF Solutions, Inc.

Forward-Looking Statements
The statements in this press release regarding PDF Solutions’ outlook for its fourth fiscal quarter of 2005 and its first fiscal quarter of 2006, including expected revenue, net income, and net income per share, are forward looking. 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: any unforeseen industry changes; difficulties in modifying PDF’s solutions on a timely basis; and changes in the marketplace for our solutions, including the introduction of products or services competitive with PDF Solutions’ products and

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services. Readers should also refer to the risk disclosures set forth in PDF Solutions’ periodic public filings with the Securities and Exchange Commission, including, without limitation, its annual report on Form 10-K, most recently filed on March 16, 2005, and its quarterly reports on Form 10-Q, most recently filed on August 9, 2005. The forward-looking statements contained in this release 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.

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PDF SOLUTIONS, INC.
RECONCILIATION OF PROJECTED GAAP NET INCOME TO PROJECTED
NON-GAAP NET INCOME
(In thousands, except per share data)

		Three Months Ending
PROJECTED RESULTS		December 31, 2005
GAAP net income per share — diluted		$	0.06			to				$	0.08
GAAP net income		$	1,790			to				$	2,365
Stock-based compensation amortization			20								20
Amortization of acquired intangible assets, net of taxes			1,230								1,230
Non-GAAP net income		$	3,040			to				$	3,615
Non-GAAP net income per share — diluted		$	0.11			to				$	0.13
Weighted average common shares — diluted			28,250								28,250

		Three Months Ending
PROJECTED RESULTS		March 31, 2006
GAAP(1) net income per share — diluted		$	0.08			to				$	0.10
GAAP(1) net income		$	2,300			to				$	2,870
Amortization of acquired intangible assets, net of taxes			1,050								1,050
Non-GAAP net income		$	3,350			to				$	3,920
Non-GAAP net income per share — diluted		$	0.12			to				$	0.14
Weighted average common shares — diluted			28,500								28,500

(1) GAAP net income for the three months ending March 31, 2006 excludes the effects of the adoption of SFAS 123(R), as management is currently evaluating its future impact.

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Use of Non-GAAP Information
In addition to providing results that are determined in accordance with Generally Accepted Accounting Principles (GAAP) of the United States of America, PDF Solutions also provides certain Non-GAAP financial measures that exclude certain charges as additional information relating to its operating results. PDF Solutions’ management believes that the presentation of these measures provides useful information to investors regarding certain additional financial and business trends relating to its financial condition and results of operations. PDF Solutions has also chosen to provide this information to investors to enable them to perform meaningful comparisons of PDF Solutions’ past, present and future operating results. These measures are not in accordance with, or an alternative to, GAAP and may be different from non-GAAP measures used by other companies. The calculations of non-GAAP financial measures have been adjusted to exclude the effects of amortization of stock-based compensation and acquired intangible assets.

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