See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS AND~~ COMPREHENSIVE ~~INCOME~~ ~~(LOSS)~~LOSS

See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)

~~PDF SOLUTIONS, INC.~~

~~CONDENDSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(unaudited)~~

~~(in thousands)~~

Accumulated

Additional Other

Common Stock

Paid-In

Treasury Stock

Accumulated

Comprehensive

Shares

Amount

Capital

Shares

Amount

Deficit

Loss

Total

Balances, December 31, 2018
32,382 $ 5 $ 310,660 8,295 $ (79,142
)
$ (30,452
)
$ (1,276
)
$ 199,795
Issuance of common stock in connection with employee stock purchase plan
87 - 782 - - - - 782
Issuance of common stock in connection with exercise of options
87 - 518 - - - - 518
Vesting of restricted stock units
104 - - - - - - -
Purchases of treasury stock in connection with tax withholdings on restricted stock grants
- - - 54 (557
)
- - (557
)
Repurchases of common stock
(314
)
- - 314 (3,917
)
- - (3,917
)
Stock-based compensation expense
- - 3,469 - - - - 3,469
Comprehensive loss
- - - - - (2,691
)
(52
)
(2,743
)
Balances, March 31, 2019
32,346 $ 5 $ 315,429 8,663 $ (83,616
)
$ (33,143
)
$ (1,328
)
$ 197,347

Additional

Accumulated
Other

Common Stock

Paid-In

Treasury Stock

Accumulated

Comprehensive

Shares

Amount

Capital

Shares

Amount

Deficit

Loss

Total

Balances, December 31, 2017
32,112 $ 5 $ 297,950 7,688 $ (71,793
)
$ (27,089
)
$ (705
)
$ 198,368
Cumulative-effect adjustment from adoption of ASU 2014-09
- - - - - 4,353 - 4,353
Issuance of common stock in connection with employee stock purchase plan
108 - 1,007 - - - - 1,007
Issuance of common stock in connection with exercise of options
8 - 39 - - - - 39
Vesting of restricted stock units
74 - - - - - - -
Purchases of treasury stock in connection with tax withholdings on restricted stock grants
- - - 36 (557
)
- - (557
)
Repurchases of common stock
(338
)
- - 338 (4,123
)
- - (4,123
)
Stock-based compensation expense
- - 2,871 - - - - 2,871
Comprehensive income (loss)
- - - - - (424
)
525 101
Balances, March 31, 2018
31,964 $ 5 $ 301,867 8,062 $ (76,473
)
$ (23,160
)
$ (180
)
$ 202,059

~~See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Table of Contents~~

~~PDF SOLUTIONS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(unaudited)~~

~~(in thousands)~~

Three Months Ended March 31,

2019

2018

Operating activities:

Net loss
$ (2,691
)
$ (424
)
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization
1,292 1,261
Stock-based compensation expense
3,476 2,856
Amortization of acquired intangible assets
252 253
Deferred taxes
(2,054 ) 117
Loss on disposal of property and equipment
— 3
Unrealized loss (gain) on foreign currency forward contract
(2
)
58
Changes in operating assets and liabilities:

Accounts receivable
(1,641
)
(80
)
Prepaid expenses and other current assets
(297
)
(2,183
)
Other non-current assets
50 798
Accounts payable
198 497
Accrued compensation and related benefits
(472
)
(1,278
)
Accrued and other liabilities
415 (532
)
Deferred revenues
429 1,906
Billings in excess of recognized revenues
894 —
Net cash provided by (used in) operating activities
(151
)
3,252
Investing activities:

Purchases of property and equipment
(2,357
)
(2,447
)
Net cash used in investing activities
(2,357
)
(2,447
)
Financing activities:

Proceeds from exercise of stock options
518 39
Repurchases of common stock
(3,917
)
(4,123
)
Proceeds from employee stock purchase plan
782 1,007
Payments for taxes related to net share settlement of equity awards
(557
)
(557
)
Net cash used in financing activities
(3,174
)
(3,634
)
Effect of exchange rate changes on cash and cash equivalents
8 84

Net change in cash and cash equivalents
(5,674
)
(2,745
)
Cash and cash equivalents, beginning of period
96,089 101,267
Cash and cash equivalents, end of period
$ 90,415 $ 98,522
Supplemental disclosure of cash flow information:

Cash paid during the period for taxes
$ 462 $ 622
Cash paid for amounts included in the measurement of operating lease liabilities
$ 276 $ —

Property and equipment received and accrued in accounts payable and accrued and other liabilities
$ 1,284 $ 1,185

~~See accompanying Notes to Condensed Consolidated Financial Statements (unaudited)~~

~~Table of Contents~~

P~~PDF~~DF SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The interim unaudited condensed consolidated financial statements included herein have been prepared by PDF Solutions, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), including the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The interim unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments necessary (consisting only of normal recurring adjustments), to present a fair statement of results for the interim periods presented. The operating results for any interim period are not necessarily indicative of the results that may be expected for other interim periods or the full fiscal year. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all intercompany balances and transactions.

The condensed consolidated balance sheet at December 31, ~~2018,~~2019, has been derived from the audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Reclassification of Prior Period Amounts

Certain prior period amounts have been reclassified to conform to the current year presentation of reporting amortization of costs capitalized to obtain revenue contracts, operating lease right-of-use assets, and operating lease liabilities on the Condensed Consolidated Statements of Cash Flows. This reclassification had no effect on the Company’s reported net loss or net cash used in operating activities.

Change in Presentation

In the fourth quarter of fiscal 2019, in order to enhance the transparency of our revenue reporting, the Company updated its Condensed Consolidated Statements of Comprehensive Loss to change its historical presentation of revenue categories. Previously, the Company presented revenue on two lines: Solutions and Gainshare performance incentives. Included within Solutions, was revenue from software and related revenue, SaaS solutions, Design-for-Inspection (DFI™) licenses, and fixed-price project-based solution implementation services. The previous Gainshare performance incentive category included only revenue from performance incentive programs. The Company now presents revenue in the following categories: Analytics and Integrated Yield Ramp. Integrated Yield Ramp revenue is comprised of all revenue from the Company’s Integrated Yield Ramp services engagements that include performance incentives based on customers’ yield achievement, i.e. both fixed-fees and Gainshare royalty from such engagements. Analytics comprises all other revenue, including from the Company’s licenses and services for Exensio Software, Exensio SaaS, DFI™ and Characterization Vehicle (CV) systems that do not include performance incentives based on customers’ yield achievement.

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The change in presentation of revenue does not change the Company’s net revenues or total cost of net revenues. The following table shows reclassified amounts to conform to the current period’s presentation (in thousands):

	For the Three Months Ended March 31, 2019
			Change in
	Previously		Presentation			Current
	Reported		Reclassification			Presentation
Revenues:
Design-to-silicon-yield solutions	$	16,661	$	(16,661	)		N/A
Gainshare performance incentives		3,880		(3,880	)		N/A
Analytics		N/A		11,434		$	11,434
Integrated Yield Ramp		N/A		9,107			9,107
Total revenues	$	20,541	$	—		$	20,541

Since certain costs of revenues are attributed to both Analytics and Integrated Yield Ramp revenue categories, the Company believes it is more appropriate and meaningful to present the Condensed Consolidated Statements of Comprehensive Loss under a one-step presentation format that excludes any measure of gross margin. In the fourth quarter of fiscal 2019, the Company elected to change its Condensed Consolidated Statements of Comprehensive Loss presentation from a two-step presentation, where total costs of revenues was deducted from total revenues to report a gross profit line, to a one-step presentation, where total costs and expenses are deducted from total revenues. The change in presentation does not change previously presented amounts for costs of revenues, operating expenses and other expenses (income), or loss before income taxes.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include revenue recognition, impairment of goodwill and long-lived assets, accounting for stock-based compensation expense, and income taxes. Actual results could differ from those estimates.

The global COVID-19 pandemic has impacted the operations and purchasing decisions of companies worldwide. It also has created and may continue to create significant uncertainty in the global economy. The Company has undertaken measures to protect its employees, partners, customers, and vendors. In addition, the Company’s personnel worldwide are subject to various travel restrictions, which limit the ability of the Company to provide services to customers and affiliates. This impacts the Company's normal operations. To date, the Company has been able to provide uninterrupted access to its products and services due to its globally distributed workforce, many of whom are working remotely, and its pre-existing infrastructure that supports secure access to the Company’s internal systems. If, however, the COVID-19 pandemic has a substantial impact on the productivity of the Company’s employees or its partners’ or customers’ decision to use the Company’s products and services, the results of the Company’s operations and overall financial performance may be adversely impacted. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial statements.

Recently Adopted Accounting Standards

~~Leases~~Intangibles – Goodwill and Other

In ~~February 2016,~~January 2017, the Financial Accounting Standards Board (or FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842). Topic 842 aims to increase transparency and comparability among organizations by requiring lessees to recognize leases with a term greater than 12 months as a right-of-use asset (“ROU”) and corresponding lease liabilities on the balance sheet, regardless of lease classification, and requiring disclosure of key information about leasing arrangements. The lease liability should be initially measured at the present value of the remaining contractual lease payments. Subsequently, the ROU assets will be amortized generally on a straight-line basis over the lease term, and the lease liability will bear interest expense and be reduced for lease payments. Topic 842 became effective for public companies’ financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective application is required with an option to not restate comparative periods in the period of adoption. The Company adopted Topic 842 on January 1, 2019 using the modified retrospective approach, and financial information for the comparative period was not updated.

In addition, the Company elected the transition package of three practical expedients which allow companies not to reassess whether agreements contain leases, the classification of leases, and the capitalization of initial direct costs. Further, the Company elected to not separate lease and non-lease components for all of its leases. The Company also made an accounting policy election to recognize lease expense for leases with a term of 12 months or less on a straight-line basis over the lease term and recognize no right of use asset or lease liability for those leases.

~~Table of Contents~~

The Company’s lease portfolio consists primarily of real estate assets, which includes administrative and sales offices, and research and development laboratory and clean room. Some of these leases also require the Company to pay maintenance, utilities, taxes, insurance, and other operating expenses associated with the leased space. Based upon the nature of the items leased and the structure of the leases, the Company’s leases are classified as operating leases and are continued to be classified as operating leases under the new accounting standard.

~~As a result of the adoption of the new lease accounting guidance, the Company recognized on January 1, 2019:~~

	●	operating lease liabilities of approximately $10.5 million, which represents the present value of the remaining lease payments, as of the date of adoption, discounted using the Company’s incremental borrowing rate of 5.3%, and
	●	operating lease ROU assets of approximately $8.7 million which represents the operating lease liabilities of $10.5 million, adjusted for (1) deferred rent of approximately $0.3 million, and (2) lease incentives or tenant improvement allowance of $1.5 million.

The adoption of the new lease accounting standard did not have any other impact on the Company’s condensed consolidated balance sheet, and did not impact the Company’s operating results and cash flows. See Leases, in Note 4 for further information, including further discussion on the impact of adoption and changes in accounting policies relating to leases.

~~Income Statement – Reporting Comprehensive Income~~

In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effect from Accumulated Other Comprehensive Income. This update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Act (TCJA) enacted in December 2017. This update became effective for the Company for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company adopted this standard on January 1, 2019, and it did not have a material impact on its condensed consolidated financial statements and footnote disclosures.

~~Management has reviewed other recently issued accounting pronouncements and has determined there are not any that would have a material impact on the condensed consolidated financial statements.~~

~~Accounting Standards Not Yet Effective~~

~~In January 2017, the FASB issued ASU~~ No. 2017-04, Intangibles -– Goodwill and Other (Topic 350). This standard eliminates step 2 from the annual goodwill impairment test. This update is effective for ~~annual periods~~the Company beginning ~~after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted, and is to be applied on a prospective basis.~~in the first quarter of 2020. The Company ~~does not anticipate that the adoption of~~adopted this standard ~~will~~on January 1, 2020, and it did not have a ~~significant~~material impact on its condensed consolidated financial statements ~~or the related~~and footnote disclosures.

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Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In August 2018, the FASB issued ASU No. 2018-15, Intangibles -– Goodwill and Other -– Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance clarifies the accounting for implementation costs incurred to develop or obtain internal-use software in cloud computing arrangements. Further, the standard also requires entities to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. This standard is effective for the Company beginning in the first quarter of 2020. Early adoption is permitted. ASU No. 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU No. 2018-15 on January 1, 2020 on a prospective basis. There was no material impact on the Company’s condensed consolidated financial statements as a result of adoption of ASU No. 2018-15 as of January 1, 2020. As of March 31, 2020, the implementation costs capitalized by the Company pertaining to a cloud computing arrangement related to sales order and customer relation management was not material. The capitalized implementation costs were included in “Other noncurrent assets” on the Condensed Consolidated Balance sheet and within the operating activities section of the Company’s Condensed Consolidated Statement of Cash Flows for the months ended March 31, 2020. When the module or component of the hosting arrangement is ready for its intended use, the Company expects to amortize the capitalized implementation costs over the respective noncancellable period of the arrangement plus period covered by an option to extend the arrangement that is reasonably certain of being exercised. There has been no amortization expense related these assets for the months ended March 31, 2020.

Management has reviewed other recently issued accounting pronouncements and has determined there are not ~~yet determined~~any that would have a material impact on the condensed consolidated financial statements.

Accounting Standards Not Yet Effective

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses. Subsequent to the issuance of ASU No. 2016-13, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instrument, ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326) Targeted Transition Relief, ASU No. 2016-13, the FASB issued ASU No. 2019-10 Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and ASU No. 2019-11 Codification Improvements to Topic 326, Financial Instruments-Credit Losses. The subsequent ASUs do not change the core principle of the guidance in ASU No. 2016-13. Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU No. 2016-13.

Additionally, ASU No. 2019-10 defers the effective date for the adoption of the new standard on credit losses for public filers that are considered small reporting companies (“SRC”) as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which will be fiscal 2023 for the Company if it continue to be classified as a SRC. In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The subsequent amendments will have the same effective date and transition requirements as ASU No. 2016-13. Early adoption is permitted. Topic 326 requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. While the Company is currently evaluating the impact of Topic 326, the Company does not expect the adoption of this ~~standard~~ASU to have a material impact on its condensed consolidated financial ~~statements.~~statements and the related disclosure.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) related to simplifying the accounting for income taxes. The guidance is effective for the Company beginning in the first quarter of 2021 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU, and does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements or the related disclosures.

In January 2020, the FASB issued ASU No. 2020-01-Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU clarifies the interaction between accounting standards related to equity securities (ASC 321), equity method investments (ASC 323), and certain derivatives (ASC 815). The amendments in this ASU are effective for fiscal years beginning after December 15, 2020. The Company does not anticipate that the adoption of this ASU will have a significant impact on its condensed consolidated financial statements or the related disclosures.

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2. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company derives revenue from two sources: ~~Solutions~~Analytics revenue and ~~Gainshare performance incentives.~~Integrated Yield Ramp revenue.

The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”). ASC 606 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. Revenue is recognized when control of products or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those promised products or services.

~~Table of Contents~~

The Company determines revenue recognition through the following five steps:

	●	Identification of the contract, or contracts, with a customer
	●	Identification of the performance obligations in the contract
	●	Determination of the transaction price
	●	Allocation of the transaction price to the performance obligations in the contract
	●	Recognition of revenue when, or as, performance obligations are satisfied

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and ~~collectibility~~collectability of consideration is probable.

Contracts with multiple performance obligations

The Company enters into contracts that can include various combinations of licenses, products and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation ~~generally~~ on a relative basis using ~~its~~ standalone selling price. ~~The Company does not adjust transaction price~~

Analytics Revenue

Analytics revenue is derived from the following primary offerings: licenses and services for ~~the effects of a significant financing component when the period between the transfers of the promised good or service to the customer~~Exensio Software, Exensio SaaS, DFI™ and ~~payment for~~CV systems that good or service by the customer is expected to be one year or less. The Company assessed each of its revenue generating arrangements in order to determine whether a significant financing component exists, and determined its contracts diddo not include ~~a significant financing component for the three months ended March 31, 2019 and 2018.~~performance incentives based on customers’ yield achievement.

~~Nature of Products and Services~~

~~Solutions revenue – The Company recognizes revenue for each element of solutions revenue as follows:~~

The Company licenses majority of its software products separately from project-based solution implementation service contracts, in particular, its Exensio big data platform and related products. The majority of this software is delivered as on-premise software licenses, while others can be delivered entirely or partially through Software-as-a-Service (SaaS) or cloud delivery models. Revenue from standalone Exensio Software is recognized depending on whether the license is perpetual or time-based. Perpetual (one-time charge) license software is recognized at ~~a point in~~the time atof the inception of the arrangement when control transfers to the ~~client,~~customers, if the software license is distinct from the services offered by ~~the Company.~~us. Revenue from post-contract support ~~subscription~~ is recognized over the contract term on a straight-line basis, because ~~the Company is~~we are providing ~~a service of standing ready to provide~~(i) support ~~when-and-if needed,~~ and ~~is providing~~(ii) unspecified software ~~upgrades~~updates on a when-and-if available basis over the contract term. Revenue from ~~time-based license~~time-based-licensed software is allocated to each performance obligation and is recognized either at a point in time or over ~~time.~~time as follows. The license component is recognized at ~~a point in~~the time atwhen control transfers to the ~~delivery of the software license,~~customer, with the post-contract support ~~subscription~~ component ~~being~~ recognized ratably over ~~for~~ the committed term of the contract. For contracts with any combination of licenses, support, and other services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using standalone selling price (or SSP) attributed to each performance obligation.

Revenue from ~~software hosting or~~Exensio SaaS arrangements, ~~that~~which allow for the use of a ~~hosted~~cloud-based software product or service over a contractually determined period of time without taking possession of software, ~~are~~is accounted for as subscriptions and is recognized as revenue ratably, on a straight-line basis, over the ~~coverage~~subscription period beginning on the date the service is first made available to customers.

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~~The Company also licenses the Design-for-Inspection (DFI) system~~

Revenue from DFI™ and CV systems that do not include performance incentives based on customers’ yield achievement is recognized primarily as ~~a separate component of fixed-price service contracts that~~services are ~~not project-based solutions implementation services contracts. The~~performed. Where there are distinct performance obligations, the Company allocates revenue to all deliverables ~~under these DFI contracts~~ based on their standalone selling prices, or SSP. ~~In such instances,~~For these contracts with multiple performance obligations, the Company ~~applies judgment~~allocate the transaction price of the contract to ~~estimate the range of SSPs for~~ each performance ~~obligation.~~

~~The Company generates~~obligation on a ~~significant portion of its solutions~~relative basis using SSP attributed to each performance obligation. Where there are not discrete performance obligations, historically, revenue from fixed-price, project-based solution implementation service contracts that are associated with its classic yield ramp business, which services are delivered over a specific period of time. Revenue under these project–based contracts for solution implementation services is primarily recognized as services are performed using a percentage of completion method based on costs or labor-hours inputs, whichever is the most appropriate measure of the progress towards completion of the contract. ~~Due~~

Integrated Yield Ramp Revenue

The Integrated Yield Ramp revenue is derived from the Company’s fixed-fee engagements that include performance incentives based on customers’ yield achievement and Gainshare royalties, typically based on customer’s wafer shipments, pertaining to these fixed-price contracts.

Revenue under these project–based contracts, which are delivered over a specific period of time typically for a fixed fee component paid on a set schedule, is recognized as services are performed using a percentage of completion. Similar to the services provided in connection with CV systems that are contributing to Analytics revenue, due to the nature of the work performed in these arrangements, the estimation of ~~costs or hours at~~percentage of completion method is complex and subject to many variables and requires significant judgment. Key factors reviewed by the Company to estimate costs to complete each contract are future labor and product costs and expected productivity efficiencies. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs. Losses on fixed-price solution implementation contracts are recognized in the period when they become probable. Revisions in profit estimates are reflected in the period in which the conditions that require ~~the revisions become known and can be estimated (cumulative catch-up method).~~significant judgement. Please refer to “Significant Judgments” section of this Note for further discussion.

The Company typically includes some of its products and other technology as components of its fixed-price, project-based services contracts. In such instances, the Company determines whether the services performed and products/technology

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~~included, are distinct. In most cases, the arrangement~~Gainshare royalty contained in IYR contracts is a single performance obligation and therefore follows the pattern of transfer as the service is provided. The Company applies a measure of progress (typically hours-to-hours or cost-to-cost) to any fixed consideration. As a result, revenue is generally recognized over the period the services are performed using percentage of completion method. This results in revenue recognition that corresponds with the value to the client for the services transferred to date relative to the remaining services promised.

Gainshare Performance Incentives — When the Company enters into a project-based solution implementation services contract, the contract usually includes two components: (1) a fixed fee for performance by the Company of services delivered over a specific period of time; and (2) a Gainshare performance incentive component where the customer pays a variable fee ~~usually after the fixed fee period has ended,~~ related to continued usage of the ~~Company's~~Company’s intellectual ~~property.~~property (“IP”) after the fixed-fee service period ends, based on the customers’ yield achievement. Revenue derived from Gainshare ~~performance incentives~~ is contingent upon the Company’s customers reaching certain defined production yield levels. Gainshare ~~performance incentive~~royalty periods are ~~usually~~generally subsequent to the delivery of all contractual services and performance obligations. The Company ~~recorded~~records Gainshare ~~revenue~~ as a usage-based royalty ~~based on customers'~~derived from customers’ usage of intellectual property and ~~recorded~~records it in the same period in which the usage occurs.

Disaggregation of ~~revenue~~Revenue

The Company disaggregates revenue from contracts with customers into ~~geographical regions, major contract performance obligations and~~the timing of the transfer of goods and ~~services.~~services and the geographical regions. The Company determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

The ~~following table shows the revenues from contracts with customers by the nature of transactions:~~

Three Months
Ended March 31,

2019

2018

Licenses and Gainshare Performance Incentives
$ 5,181 $ 7,487
Support and Services
15,252 16,989
Other
108 261
Total
$ 20,541 $ 24,737

Licenses and Gainshare Performance Incentives revenue is comprised of (i) the software license fees for perpetual and time-based software license contracts where the standalone selling prices are estimable by the Company, or distinct and separate performance obligations; and (ii) the variable fee component of the Company’s yield improvement service contracts, or Gainshare Performance Incentives, which is usually recognized as revenue subsequent to the delivery of all contractual services and performance obligations. The services component of such contracts, including recurring fees for unspecified software updates and technical support, is presented as support and services.

~~The~~ Company’s performance obligations are satisfied either over time or at a point-in-time. The following table represents a disaggregation of revenue by timing of revenue:

	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Over time		75	%		69	%		58	%		75	%
Point-in-time		25	%		31	%		42	%		25	%
Total		100	%		100	%		100	%		100	%

International revenues accounted for approximately ~~55%~~59% of our total revenues for the three months ended March 31, ~~2019~~2020 as compared to ~~59%~~55% for the three months ended March 31, ~~2018.~~2019. See Note 10. Customer and Geographic Information.

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Significant Judgments

Judgments and estimates are required under ~~ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).~~ASC 606. Due to the complexity of certain contracts, the actual revenue recognition treatment required under ~~Topic~~ASC 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.

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In services arrangements, the Company typically satisfies the performance obligation and recognizes revenue over time. In Design-to-silicon-yield service arrangements, the performance obligation is satisfied over time either because the client controls the asset as it is created (e.g., when the asset is built at the customer site) or because the Company’s performance does not create an asset with an alternative use and the Company has an enforceable right to payment plus a reasonable profit for performance completed to date. In most other services arrangements, the performance obligation is satisfied over time because the client simultaneously receives and consumes the benefits provided as the Company performs the services.

For revenue under project-based contracts for fixed-price ~~solution~~ implementation services, revenue is recognized as services are performed using a percentage-of-completion method based on costs or labor-hours input method, whichever is the most appropriate measure of the progress towards completion of the contract. Due to the nature of the work performed in these arrangements, the estimation of percentage of completion method is complex, subject to many variables and requires significant judgment. Key factors reviewed by the Company to estimate costs to complete each contract are future labor and product costs and expected productivity efficiencies. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in revenue on a cumulative catch-up basis in the period in which the circumstances that gave rise to the revision become known.

The Company’s contracts with customers often include promises to transfer products, licenses software and provide services, including professional services, technical support services, and rights to unspecified updates to a customer. Determining whether ~~products,~~ licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. The Company rarely licenses ~~or sells products~~software on a standalone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where SSP is not directly observable because the Company does not license the software or sell the ~~license, product or~~ service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. The Company, in some cases, has more than one SSP for individual performance obligations. In these instances, the Company may use information such as the size of the customer and geographic region of the customer in determining the SSP.

The Company is required to record Gainshare royalty revenue in the same period in which the usage occurs. Because the Company generally does not receive the acknowledgment reports from its customers during a given quarter within the time frame necessary to adequately review the reports and include the actual amounts in quarterly results for such quarter, the Company accrues the related revenue based on estimates of ~~customer's~~customers underlying sales achievement. The ~~Company~~Company’s estimation process can be based on historical data, trends, seasonality, changes in the contract rate, knowledge of the changes in the industry and changes in the customer’s manufacturing environment learned through discussions with customers and sales personnel. As a result of accruing revenue for the quarter based on such estimates, adjustments will be required in the following quarter to true-up revenue to the actual amounts reported.

Contract Balances

The Company performs its obligations under a contract with a customer by ~~transferring products~~licensing software or providing services in exchange for consideration from the customer. The timing of the Company’s performance often differs from the timing of the customer’s payment, which results in the recognition of a receivable, a contract asset or a contract liability.

The Company classifies the right to consideration in exchange for ~~products~~software or services transferred to a ~~client~~customer as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional, as compared to a contract asset, which is a right to consideration that is conditional upon factors other than the passage of time. The majority of the Company’s contract assets represent unbilled amounts related to fixed-price ~~solution implementation~~ service contracts when the ~~costs or labor-hours input method of revenue recognition is utilized and~~ revenue recognized exceeds the amount billed to the ~~client, and the right to consideration is subject to milestone completion or client acceptance.~~customer. The contract assets are generally classified as current and are recorded on a net basis with deferred revenue (i.e., contract liabilities) at the contract level. ~~The contract assets is included in prepaid expenses and other current assets in the condensed consolidated balance sheets.~~ At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, contract assets of ~~$3.5~~$1.4 million and ~~$2.7~~$3.6 million, respectively, are included in prepaid expenses and other current assets in the ~~condensed consolidated balance sheets.~~Condensed Consolidated Balance Sheets. The ~~change in the~~Company did not record any asset impairment charges related to contract assets ~~balance~~ during the ~~period relates to the recording of revenues for which the right to consideration is subject to milestone completion or client acceptance~~months ended March 31, 2020 and ~~movement of previously recorded contract assets to receivables as the right to consideration becomes unconditional.~~ 2019.

Deferred revenues consist substantially of amounts invoiced in advance of revenue recognition and isare recognized as the revenue recognition criteria are met. Deferred revenues that will be recognized during the succeeding twelve-month period isare recorded as current deferred revenues and the remaining portion is recorded as non-current deferred ~~revenues. This balance was recorded~~revenues in the other non-current liabilities in the accompanying condensed consolidated balance sheets. The non-current portion of deferred revenue included in other non-current liabilities was $0.7 million and $1.0 million, respectively, as of March 31, 2019 and December 31, 2018.Condensed Consolidated Balance Sheets. Revenue recognized for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, that was included in the deferred ~~revenue balance~~revenues and billings in excess of recognized revenues balances at the beginning of each reporting period was ~~$3.3~~$4.6 million and ~~$2.6~~$3.3 million, respectively.

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At March 31, ~~2019,~~2020, the aggregate amount of the transaction price allocated to the remaining performance obligations related to customer contracts that were unsatisfied or partially unsatisfied was approximately ~~$40.4~~$68.5 million. Given the applicable contract terms, the majority of this amount is expected to be recognized as revenue over the next two years, with the remainder in the following five years. This amount does not include contracts to which the customer is not committed, ~~nor contracts with original expected lengths of one year or less,~~ nor contracts for which we recognize revenue equal to the amount we have the right to invoice for services performed, or future sales-based or usage-based royalty payments in exchange for a license of intellectual property. This amount is subject to change due to future revaluations of variable consideration, terminations, other contract modifications, or currency adjustments. The estimated timing of the recognition of remaining unsatisfied performance obligations is subject to change and is affected by changes to the scope, change in timing of delivery of products and services, or contract modifications.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 90 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, and not to facilitate financing arrangements.

The adjustment to revenue recognized in the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 from performance obligations satisfied (or partially satisfied) in previous periods was ~~a decrease~~an increase of ~~$0.5~~$0.7 million and ~~an increase~~decrease of $0.5 million, respectively. These amounts primarily represent changes in estimated percentage-of-completion based contracts and changes in estimated Gainshare ~~performance incentives~~royalty for those customers that reported actual Gainshare revenue with some time lag.

Costs to obtain or fulfill a contract

The Company capitalizes the incremental costs to obtain or fulfill a contract with a customer, including direct sales commissions and related fees, when it expects to recover those costs. As a result, these costs will need to be capitalized and amortized over an appropriate period, which may exceed the initial contract term. The incremental costs of obtaining a contract are costs that would not have been incurred if the contract had not been obtained. The Company uses the portfolio method to recognize the amortizationAmortization expense related to these capitalized costs ~~related to initial contracts and renewals and such expense~~ is recognized over the period associated with the revenue offrom which the ~~related portfolio.~~cost was incurred. Total capitalized direct sales commission costs included in prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$0.6~~$0.4 million. Total capitalized direct sales commission costs included in other non-current assets in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 were $0.8 million and ~~$0.5~~$0.4 million, respectively. Amortization of these assets during each of the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 was $0.1 million. There was no impairment loss in relation to the costs capitalized for the periods presented.

Certain eligible initial project costs are capitalized when the costs relate directly to the contract, the costs generate or enhance resources of the ~~company~~Company that will be used in satisfying the performance obligation in the future, and the costs are expected to be recovered. These costs primarily consist of transition and set-up costs related to the installation of systems and processes and other deferred fulfillment costs eligible for capitalization. Capitalized costs are amortized consistent with the transfer to the ~~client~~customer of the services to which the asset relates and recorded as a component of cost of revenues. The Company also ~~incurred~~incurs certain direct costs to provide ~~solution implementation~~ services in relation to the specific anticipated contracts. The Company recognizes such costs as a component of ~~cost~~costs of revenues, the timing of which is dependent upon identification of a contract arrangement. The Company also defers costs from arrangements that required usit to defer the revenues, typically due to the pattern of transfer of the performance obligations in the contract. These costs are recognized in proportion to the related revenue. At the end of the reporting period, the Company evaluates its deferred costs for their probable recoverability. The Company recognizes impairment of deferred costs when it is determined that the costs no longer have future benefits and are no longer recoverable. There was no impairment loss in relation to the costs capitalized for the periods presented. Deferred costs balance ~~was $0.1 million and $0.2 million as of March 31, 2019 and December 31, 2018, respectively. The balance was~~ included in prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 was $0.3 million. Deferred costs balance included in other non-current assets in the accompanying ~~condensed consolidated balance sheets.~~Condensed Consolidated Balance Sheets as of March 31, 2020 was immaterial and was $0.2 million as of December 31, 2019.

Practical Expedients

The Company does not adjust transaction price for the effects of a significant financing component when the period between the transfers of the promised good or service to the customer and payment for that good or service by the customer is expected to be one year or less. The Company assessed each of its revenue generating arrangements in order to determine whether a significant financing component exists, and determined its contracts did not include a significant financing component for the three months ended March 31, 2020 and 2019.

3. BALANCE SHEET COMPONENTS

Accounts receivable

~~Account~~Accounts receivable include amounts that are unbilled at the end of the period that are expected to be billed and collected within 12-month period. Unbilled accounts receivable, included in accounts receivable, totaled ~~$19.4~~$9.4 million and ~~$22.2~~$7.4 million as of March 31, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively. Unbilled accounts receivable that are not expected to be billed and collected during the succeeding 12-month period are recorded in other non-current assets and totaled ~~$5.1~~$2.8 million and ~~$5.3~~$4.1 million as of March 31, ~~2019,~~2020, and December 31, ~~2018,~~2019, respectively.

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Property and equipment

Property and equipment, net ~~consists~~consist of the following (in thousands):

	March 31, 2019			December 31, 2018			March 31,			December 31,
Property and equipment, net:
							2020			2019
Computer equipment	$	10,645		$	10,536		$	10,893		$	10,880
Software		4,106			4,112			4,685			4,690
Furniture, fixtures and equipment		4,853			4,688			2,419			2,395
Leasehold improvements		5,020			5,474			6,087			6,095
Laboratory and other equipment								4,974			4,933
Test equipment		15,110			14,697			23,604			22,980
Construction-in-progress		20,958			20,293			19,377			18,245
		60,692			59,800			72,039			70,218
Less: accumulated depreciation		(24,756	)		(24,119	)
Less: accumulated depreciation and amortization								(31,030	)		(29,420	)
Total	$	35,936		$	35,681		$	41,009		$	40,798

Test equipment includes ~~DFI~~DFI™ assets at customer sites that are contributing to ~~DFI solution~~DFI™ revenues. The construction-in-progress balance related to construction of DFI™ assets totaled $17.7 million and $16.6 million as of March 31, ~~2019~~2020 and December 31, ~~2018 was primarily related to construction of DFI assets.~~2019, respectively. Depreciation and amortization expense ~~was $1.3 million~~ for ~~both~~ the three months ended March 31, 2020 and 2019 was $1.7 million and ~~2018.~~$1.3 million, respectively.

Goodwill and Intangible Assets

As of March 31, ~~2019,~~2020, and December 31, ~~2018,~~2019, the carrying amount of goodwill was ~~$1.9~~$2.3 million.

Intangible assets balance was ~~$4.8~~$5.9 million and ~~$5.1~~$6.2 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Intangible assets as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 consist of the following (in thousands):

																			March 31, 2020							December 31, 2019
																		Amortization	Gross					Net		Gross					Net
				March 31, 2019							December 31, 2018							Period	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amortization Period (Years)			Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		(Years)	Amount		Amortization			Amount		Amount		Amortization			Amount
Acquired identifiable intangibles:
Customer relationships	1	‒	9	$	6,740	$	(4,606	)	$	2,134	$	6,740	$	(4,514	)	$	2,226	1 ‒ 9	$	7,440	$	(5,047	)	$	2,393	$	7,440	$	(4,935	)	$	2,505
Developed technology	4	‒	9		15,820		(13,548	)		2,272		15,820		(13,404	)		2,416	4 ‒ 9		17,460		(14,290	)		3,170		17,460		(14,101	)		3,359
Tradename	2	‒	7		790		(654	)		136		790		(648	)		142	2 ‒ 7		790		(679	)		111		790		(673	)		117
Patent	7	‒	10		1,800		(1,530	)		270		1,800		(1,520	)		280	7 ‒ 10		1,800		(1,570	)		230		1,800		(1,560	)		240
Total				$	25,150	$	(20,338	)	$	4,812	$	25,150	$	(20,086	)	$	5,064		$	27,490	$	(21,586	)	$	5,904	$	27,490	$	(21,269	)	$	6,221

The weighted average amortization period for acquired identifiable intangible assets was ~~5.7~~6.0 years as of March 31, ~~2019. For both~~2020. Intangible asset amortization expense was $0.3 million during each of the three months ended March 31, 2020 and 2019, ~~and 2018, intangible asset amortization~~which was recorded in other expense ~~was $0.3 million.~~(income), net in the Company’s Condensed Consolidated Statements Comprehensive Loss. The Company expects annual amortization of acquired identifiable intangible assets to be as follows (in thousands):

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Intangible assets are amortized over their useful lives unless these lives are determined to be indefinite. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. During the three months ended March 31, ~~2019,~~2020, there were no indicators of impairment related to the Company’s intangible assets.

During the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, a total of approximately ~~88,000~~89,000 and ~~108,000~~88,000 shares, respectively, were issued at a weighted-average purchase price of ~~$8.93~~$9.02 and ~~$9.29~~$8.93 per share, respectively. As of March 31, ~~2019,~~2020, there was ~~$1.3~~$0.7 million of unrecognized compensation cost related to the Purchase Plan. That cost is expected to be recognized over a weighted average period of ~~1.83~~1.01 years. As of March 31, ~~2019, 5.2~~2020, 5.8 million shares were available for future issuance under the Purchase Plan.

On November 16, 2011, the Company’s stockholders initially approved the 2011 Stock Incentive Plan, which has been amended and restated and approved by the Company’s stockholders a number of times since then (as amended, the “2011 Plan”). Under the 2011 Plan, the Company may award stock options, stock appreciation rights, stock grants or stock units covering shares of the Company’s common stock to employees, directors, non-employee directors and contractors. The aggregate number of shares reserved for awards under this plan is ~~9,050,000~~10,300,000 shares, plus up to 3,500,000 shares previously issued under the 2001 Stock Plan adopted by the Company in 2001, which expired in 2011 (the “2001 Plan”) that are (i) forfeited or (ii) repurchased by the Company or shares subject to awards previously issued under the 2001 Plan that expire or that terminate without having been exercised or settled in full on or after November 16, 2011. In case of awards other than options or stock appreciation rights (“SARs”), the aggregate number of shares reserved under the ~~plan~~2011 Plan will be decreased at a rate of 1.33 shares issued pursuant to such awards. The exercise price for stock options must generally be at prices no less than the fair market value at the date of grant. Stock options generally expire ten years from the date of grant and become vested and exercisable over a four-year period.

On April 26, ~~2019,~~2020 the Company’s Board of Directors amended the 2011 Plan, subject to the approval of the Company’s stockholder, ~~approval,~~ to increase the number of shares reserved for awards under it to a total of ~~10,300,00~~11,550,000 shares, which is an increase of an additional 1,250,000 ~~shares.~~shares and extend the term of the 2011 Plan through June 22, 2030.

~~In 2001, the Company adopted a 2001 Stock Plan (the “2001 Plan”).~~ In 2003, in connection with its acquisition of IDS Systems Inc., the Company assumed IDS’ 2001 Stock Option / Stock Issuance Plan (the “IDS Plan”). ~~Both of the 2001 and the~~The IDS ~~Plans~~Plan expired in 2011. Stock options granted under the 2001 Plan and IDS ~~Plans~~Plan generally expire ten years from the date of grant and become vested and exercisable over a ~~four -year~~four-year period. Although no new awards may be granted under the 2001 Plan or IDS ~~Plans,~~Plan, awards made under the 2001 Plan and IDS ~~Plans~~Plan that are currently outstanding remain subject to the terms of each such plan.

As of March 31, ~~2019, 9.6~~2020, 10.8 million shares of common stock were reserved to cover stock-based awards under the 2011 Plan, of which ~~2.9~~3.4 million shares were available for future grant. The number of shares reserved and available under the 2011 Plan includes 0.5 million shares that were subject to awards previously made under the 2001 Plan and were forfeited, expired or repurchased by the Company after the adoption of the 2011 Plan through March 31, ~~2019.~~2020. As of March 31, ~~2019,~~2020, there were no outstanding awards that had been granted outside of the 2011, 2001 or the IDS Plans (collectively, the “Stock Plans”).

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The Company estimated the fair value of share-based awards granted under the 2011 Stock Plan during the period using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions, resulting in the following weighted average fair values:

Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally four years. Stock-based compensation expense before taxes related to the Company’s stock plans and employee stock purchase plan was allocated as follows (in thousands):

The stock-based compensation expense ~~for the three months ended March 31, 2019, and 2018~~ in the table above includes immaterial expense or credit adjustments related to cash-settled ~~stock appreciation rights (“SARs”)~~SARs granted to certain ~~employees which totaled to an expense of $7,000, and a credit of $15,000, respectively.~~employees. The Company accounted for these awards as liability awards and the amount was included in accrued compensation and related benefits. Stock-based compensation capitalized in the capitalized software development costs, which were included in the Property and Equipment, net, was approximately $0.1 million at March 31, 2020.

Additional information with respect to options under the Stock Plans during the three months ended March 31, ~~2019,~~2020, was as follows:

The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of ~~$12.35~~$11.72 per share as of March 31, ~~2019.~~2020. The total intrinsic value of options exercised during the three months ended March 31, ~~2019,~~2020, was ~~$0.4~~$0.1 million.

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As of March 31, ~~2019,~~2020, there was ~~$1.0~~$0.7 million of total unrecognized compensation cost related to unvested stock options. That cost is expected to be recognized over a weighted average period of ~~3.0~~2.7 years. The total fair value of shares vested during the three months ended March 31, ~~2019,~~2020, was $0.1 million.

Nonvested restricted stock units activity during the three months ended March 31, ~~2019,~~2020, was as follows:

As of March 31, ~~2019,~~2020, there was ~~$16.2~~$18.2 million of total unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over a weighted average period of 2.6 years. Restricted stock units do not have rights to dividends prior to vesting.

Cash payments for the remaining restructuring liabilities as of March 31, 2019 ~~are expected to be made~~were paid in the ~~remaining nine months~~second quarter of fiscal 2019.

For the periods ended March 31, ~~2019~~2020 and ~~2018,~~2019, because the Company was in a loss position, basic net loss per share is the same as diluted net loss per share as the inclusion of the potential common shares would have been anti-dilutive.

The following table sets forth potential shares of common stock that are not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):

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Revenues from customers by geographic area based on the location of the customers’ work sites are as follows (in thousands):

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The following table represents the Company’s assets measured at fair value on a recurring basis as of December 31, ~~2018,~~2019, and the basis for that measurement (in thousands):

The Company enters into foreign currency forward contracts to reduce the exposure to foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily on third-party accounts payables and intercompany balances. The primary objective of the Company’s hedging program is to reduce volatility of earnings related to foreign currency exchange rate fluctuations. The counterparty to these foreign currency forward contracts is a ~~large global~~ financial institution that the Company believes is creditworthy, and therefore, the Company believes the credit risk of counterparty nonperformance is not significant. These foreign currency forward contracts are not designated for hedge accounting treatment.

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Therefore, the change in fair value of these contracts is recorded into earnings as a component of other ~~income (expense)~~expense (income), net, and offsets the change in fair value of the foreign currency denominated assets and liabilities, which is also recorded in other ~~income (expense)~~expense (income), net. ~~For the three months ended March 31, 2019 and 2018, the~~The Company recognized a realized loss of $0.3 million during each of the three months ended March 31, 2020 and ~~a realized gain of $0.2 million on the contracts, respectively,~~2019, which was recorded in other ~~income (expense)~~expense (income), net in the Company’s ~~condensed consolidated statements of operations and comprehensive income (loss).~~Condensed Consolidated Statements Comprehensive Loss.

The Company carries these derivatives financial instruments on its ~~condensed consolidated balance sheets~~Condensed Consolidated Balance Sheets at their fair values. The Company’s foreign currency forward contracts are classified as Level 2 because it is not actively traded and the valuation inputs are based on quoted prices and market observable data of similar instruments. As of March 31, 2020 and December 31, 2019, the Company had ~~one~~no outstanding forward contract with a notional amount of $8.2 million and recorded $53,000 other current liability associated with this outstanding forward contract. As of December 31, 2018, the Company had one outstanding forward contract with a notional amount of $8.2 million and recorded $55,000 other current liability associated with the outstanding forward contract.contracts.

Ite~~Item~~m 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential”, “target” or “continue,” the negative effect of terms like these or other similar expressions. Any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, ~~and~~ possible actions taken by us or our subsidiaries, and the potential impact of the COVID-19 pandemic on our business, which may be provided by us are also forward-looking statements. 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 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 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, ~~2018,~~2019, filed with the Securities and Exchange Commission on March ~~8, 2019.~~10, 2020. All references to “we”, “us”, “our”, “PDF”, “PDF Solutions” or “the Company” refer to PDF Solutions, Inc.

We ~~analyze our customers’ IC design~~offer products and ~~manufacturing processes~~services designed to ~~identify, quantify,~~empower engineers and ~~correct~~data scientists across the ~~issues that cause yield loss~~semiconductor ecosystem to improve the yield, quality, and profitability of their products. We derive revenues from two sources: Analytics and Integrated Yield Ramp. Our offerings combine proprietary software, physical IP for Integrated Circuits (or IC) designs, electrical measurement hardware tools, proven methodologies, and professional services. We primarily monetize our ~~customers’ profitability by improving time-to-market, increasing~~offerings through time-based license fees, contract revenue for professional services, and increasingly recently, software as a service (or SaaS). In some cases, especially on our historical integrated yield and reducing total design and manufacturing costs. We package our solutions in various ways to meet our customers’ specific business and budgetary needs, each of which provides us various revenue streams. Weramp (or IYR) engagements, we also receive a mix of fixed fees and variable, performance-based fees for the vast majority of our yield improvement solutions. The fixed fees are typically reflective of the length of time and the resources needed to characterize a customer’s manufacturing process and receive preliminary results of proposed yield improvement suggestions. We receive license fees and service fees for related installation, integration, training, and maintenance and support services for our software and hardwarevalue-based royalty that we ~~license on a stand-alone basis.~~call Gainshare. Our products, services, and solutions have been sold to integrated device manufacturers (or IDMs), fabless semiconductor companies, foundries, out-sourced semiconductor assembly and test (or OSATs), and system houses.

The global COVID-19 pandemic has impacted the operations and purchasing decisions of companies worldwide. The full potential economic impact is not yet known and is difficult to predict. The global financial markets have been significantly disrupted, which may impact access to financing or result in a recession or long-term market correction. In January 2020, the Chinese government imposed certain restrictions on the movement of people and goods to limit the spread of the coronavirus in and around Wuhan. While our China operations are not located in Wuhan, our Shanghai office was temporarily shut down and the restrictions continue to limit the ability of our local employees to travel to customer sites or visit our other offices. Our offices in Italy and Germany were closed in February 2020 and by March 2020 our corporate headquarters in the United States and several other impacted locations were temporarily closed as well. In addition, our personnel worldwide are subject to various travel restrictions, which limit our ability to provide services to customers at their facilities. To date, we have been able to provide uninterrupted access to our products and services due to our globally distributed workforce, many of whom are already working remotely, and our pre-existing infrastructure, which supports secure access to our internal systems. If, however, the COVID-19 pandemic has a substantial impact on our employees’ productivity or our partners or customers decision to use our products and services, our ability to deliver on current commitments, to secure future bookings, or achieve expected financial performance may be harmed. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and the impact of these and other factors on our employees, customers, partners and vendors.

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Certain general business trends may affect our Analytics revenue. 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 IT networks and computing at those same companies. First, the ubiquity of 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 continually decreased year to year. The combination of these two trends means that more data is collected and stored than ever before. 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 two trends means that cloud-based, analytic 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 companies that have a combination of advanced analytics capabilities, proven and established data infrastructures, and professional services to optimize their environment to customers’ specialized needs.

Other business trends may continue to affect our Integrated Yield Ramp revenue. The logic foundry market at the leading edge nodes, such as 10nm and 7nm ~~is undergoing~~has undergone significant ~~change.~~change over the past few years. The leading foundry ~~has increased~~continues to increase market share as other foundries have either suspended 7nm development, or forecasted a later start of mass ~~production.~~production, or started later than originally forecast in some cases. This trend will likely continue to negatively impact our ~~future yield ramp solutions~~Integrated Yield Ramp business on these nodes. ~~For many foundries, utilization rates for 28nm fabs remain suppressed.~~ We expect most logic foundries to invest in derivatives of older process nodes, such as 28nm and 20nm, to extract additional value as many of their customers will not move to advanced nodes due to either technological barriers or restrictive economics. Foundries that participate at leading edge nodes are expected to continue to invest in new technologies such as memory, packaging, and multi-patterned and EUV lithography, as well as new innovations in process control and variability management. We expect China’s investment in semiconductors to ~~continue for at least the next few years.~~continue. In order for these trends to provide opportunities for us to increase our business in process control and electrical characterization, Chinese semiconductors manufacturers will need to increase their production volumes on advanced technology ~~nodes.~~nodes and continue to engage foreign suppliers. As a result of these market developments, we have chosen to focus our resources and investments in products, services, and solutions for analytics.

~~Generally,~~There are other general business trends that may affect our business opportunities. For instance, the demand for consumer electronics, communications devices, and high performance computing continues to drive technological innovation in the semiconductor industry as the need for products with greater performance, lower power consumption, reduced costs and smaller size continues to grow with each new product generation. In addition, advances in computing systems and mobile devices have fueled demand for higher capacity memory chips. To meet these demands, IC manufacturers and designers are constantly challenged to improve the overall performance of their ICs by designing and manufacturing ICs with more embedded applications to create greater functionality while lowering power and cost per transistor. As this trend continues, companies will continually be challenged to improve process capabilities to optimally produce ICs with minimal random and systematic yield loss, which is driven by the lack of compatibility between the design and its respective manufacturing process. We believe that these difficulties will continue to create a ~~greater~~ need for all types of products and services that address yield loss across the IC product life cycle.

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The interest in Industry 4.0 (i.e., the fourth industrial revolution or the digital transformation of manufacturing technologies) is another trend that will drive increased innovation in semiconductor and electronics manufacturing. The ability to add cost-effective sensors to monitor every step of a manufacturing process and the continual reduction in the cost per terabyte of data storage is moving companies that manufacture products directly or through a supply chain to collect as much manufacturing and test data as possible in order to analyze it and optimize every aspect of manufacturing and test operations to lower costs and improve product quality and profitability. Many software companies, both large and small, are developing advanced analytics solutions that employ both artificial intelligence and machine learning algorithms to identify and optimize these inefficiencies in the manufacturing supply chain. We believe that this trend will continue for the next few years, and the challenges involved in finding new insights will create opportunities for companies that have a combination of advanced analytics capabilities, domain-specific IP, and professional services.

~~Customer Contracts~~

Although a substantial portion of our total revenues are concentrated in a small number of customers, the total revenues for each of these customers in any period is the result of Solutions revenue and Gainshare performance incentives revenues recognized in the period under multiple, separate contracts, with no interdependent performance obligations. In general, our customer contracts are non-cancellable. These contracts were all entered into in the ordinary course of our business and contain general terms and conditions that are standard across most of our yield improvement solutions customers, including providing services typically targeted to one manufacturing process node, for example the 28 or 14 nanometer node. Fluctuations in future results may occur if any of these customers renegotiate pre-existing contractual commitments due to adverse changes in their own business. For example, during the third quarter of 2018, a major customer publicly announced that it was indefinitely suspending the development and production of its 7nm technology node. This customer’s decision negatively impacted our Solutions revenue in the fourth quarter of 2018 and Gainshare performance incentives revenues in the first quarter of 2019. In March 2019, we entered into an amendment to the 7nm technology development agreement with this customer. Even though we were able to recognize Solutions revenue from this customer during the first quarter of 2019 as a result of this amendment, we expect that Gainshare performance incentives revenues related to this contract will not be recognized in the long-term as Gainshare performance incentives revenues are based on future production of the customer.

See the additional discussion in Part I, Item 1, “Customers,” on page 9 of our Annual Report on Form 10-K for the year ended December 31, 2018, and in Item 1A, “Risk Factors,” on pages 12 through 21 of our Annual Report on Form 10-K for the year ended December 31, 2018, for related information on the risks associated with customer concentration and Gainshare performance incentives revenue.

Financial highlights for the three months ended March 31, ~~2019,~~2020, were as follows:

See Note 1 of “Notes to Condensed Consolidated Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements and accounting changes, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements, and to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~With the exception of the changes made to our accounting for leases as a result of the adoption of ASC 842, there~~There have been no material changes during the three months ended March 31, ~~2019~~2020 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.

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The following is a brief discussion of the more significant accounting policies and methods that we use.

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 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, ~~stock-based compensation~~valuation of long-lived assets including goodwill and intangible assets, and the realization of deferred tax assets. Actual amounts may differ from such estimates under different assumptions or conditions.

We derive ~~revenues~~revenue from two sources: ~~Solutions revenue~~Analytics and ~~Gainshare performance incentives.~~Integrated Yield Ramp.

~~Solutions revenue — We recognize revenue for each element of solutions revenue as follows:~~Analytics Revenue

~~We license~~Analytics revenue is derived from the ~~majority of our software products separately from project-based solution implementation service contracts, in particular, our~~following primary offerings: licenses and services for Exensio ~~big data platform~~Software, Exensio SaaS, DFI and related products. The majority of this software is delivered as on-premise software licenses, while others can be delivered entirely or partially through Software-as-a-Service (SaaS) or cloud delivery models. CV systems that do not include performance incentives based on customers’ yield achievement.

Revenue from standalone Exensio Software is recognized depending on whether the license is perpetual or time-based. Perpetual (one-time charge) license software is recognized at ~~a point in~~the time atof the inception of the arrangement when control transfers to the ~~client,~~customers, if the software license is distinct from the services offered by us. Revenue from post-contract support ~~subscription~~ is recognized over the contract term on a straight-line basis, because we are providing ~~a service of standing ready to provide~~(i) support ~~when-and-if needed,~~ and ~~is providing~~(ii) unspecified software ~~upgrades~~updates on a when-and-if available basis over the contract term. Revenue from ~~time-based license~~time-based-licensed software is allocated to each performance obligation and is recognized either at a

point in time or over ~~time.~~time as follows. The license component is recognized at ~~a point in~~the time ~~at the delivery of the software license,~~when control transfers to customers, with the post-contract support ~~subscription~~ component ~~being~~ recognized ratably over ~~for~~ the committed term of the contract. For contracts with any combination of licenses, support, and other services, distinct performance obligations are accounted for separately. For contracts with multiple performance obligations, we allocate the transaction price of the contract to each performance obligation on a relative basis using standalone selling price (or SSP) attributed to each performance obligation.

~~We also license our Design-for-Inspection (DFI) system~~Revenue from DFI™ and CV systems that do not include performance incentives based on customers’ yield achievement is recognized primarily as ~~a separate component of fixed-price service contracts that~~services are ~~not project-based solutions implementation services contracts. We~~performed. Where there are distinct performance obligations, we allocate revenue to all deliverables ~~under these DFI contracts~~ based on their standalone selling prices, or SSP. ~~In such instances,~~For these contracts with multiple performance obligations, we ~~apply judgment~~allocate the transaction price of the contract to ~~estimate the range of SSPs for~~ each performance ~~obligation.~~

~~We generate~~obligation on a ~~significant portion of our solutions~~relative basis using SSP attributed to each performance obligation. Where there are not discrete performance obligations, historically, revenue from fixed-price, project-based solution implementation service contracts that are associated with its classic yield ramp business, which services are delivered over a specific period of time. Revenue under these project–based contracts for solution implementation services is primarily recognized as services are performed using a percentage of completion method based on costs or labor-hours inputs, whichever is the most appropriate measure of the progress towards completion of the contract. ~~Due~~

Integrated Yield Ramp revenue is derived from our yield ramp engagements, which include Gainshare or other performance incentives based on customers’ yield achievement.

Revenue under these project–based contracts, which are delivered over a specific period of time typically for a fixed fee component paid on a set schedule, is recognized as services are performed using a percentage of completion. Similar to the services provided in connection with CV systems that are contributing to Analytics revenue, due to the nature of the work performed in these arrangements, the estimation of ~~costs or hours at~~percentage of completion method is complex and subject to many variables and requires significant judgment. Key factors reviewed by us to estimate costs to complete each contract are future labor and product costs and expected productivity efficiencies. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs. Losses on fixed-price solution implementation contracts are recognized in the period when they become probable. Revisions in profit estimates are reflected in the period in which the conditions that require ~~the revisions become known and can be estimated (cumulative catch-up method).~~significant judgement.

Table of our products and other technology as components of our fixed-price, project-based services contracts. In such instances, we determine whether the services performed and products/technology included, are distinct. In most cases, the arrangement is a single performance obligation and therefore follows the pattern of transfer as the service is provided. We apply a measure of progress (typically hours-to-hours or cost-to-cost) to any fixed consideration. As a result, revenue is generally recognized over the period the services are performed using the percentage of completion method. This results in revenue recognition that corresponds with the value to the client of the services transferred to date relative to the remaining services promised.
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The Gainshare Performance Incentives — When we enter into a project-based solution implementation services contract, the contract usually includes two components: (1) a fixed fee for performance by the Company of services delivered over a specific period of time; and (2) a Gainshare performance incentive component where the customer paysroyalty contained in yield ramp contracts is a variable fee ~~usually after the fixed fee period has ended,~~ related to continued usage of our IP after the ~~Company's intellectual property.~~fixed-fee service period ends, based on the customers’ yield achievement. Revenue derived from Gainshare ~~performance incentives~~ is contingent upon our customers reaching certain defined production yield levels. Gainshare ~~performance incentive~~royalty periods are ~~usually~~generally subsequent to the delivery of all contractual services and performance obligations. We ~~recorded~~record Gainshare ~~revenue~~ as a usage-based royalty ~~based on~~derived from customers' usage of intellectual property and ~~recorded~~record it in the same period in which the usage occurs.

We are required to assess whether it is "more-likely-than-not" that we will realize our deferred tax assets. If we believe that they are not likely to be fully realizable before the expiration dates applicable to such assets, then to the extent we believe that recovery is not likely, we must establish a valuation allowance. The ~~Company's provision for income~~valuation allowance was approximately $10.0 million and $10.5 million as of March 31, 2020 and December 31, 2019 respectively, which was related to California R&D tax ~~comprises its current tax liability~~credits and California net operating losses related to an acquisition that we currently do not believe to be “more-likely-than-not” to be ultimately realized. If we conclude at a future financial reporting period that there has been a change in our ability to realize our California R&D credit and net operating loss carry forward deferred tax assets, and ~~liabilities. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between~~it is at such time “more-likely-than-not” that we will realize the tax ~~bases of assets and liabilities. The measurement of current and~~credits before applicable expiration dates, our tax provision will decrease in the period in which we make such determination.

We evaluate our deferred tax assets for realizability considering both positive and ~~liabilities is~~negative evidence, including our historical financial performance, projections of future taxable income, future reversals of existing taxable temporary differences, tax planning strategies and any carryback availability. In evaluating the need for a valuation allowance, we estimate future taxable income based on ~~provisions of enacted tax laws; the effect of future~~management approved business plans. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or ~~rates are not anticipated. Valuation allowances are provided to reduce~~variances between future projected operating performance and actual results. Changes in the net deferred tax assets, ~~to an amount that~~less offsetting valuation allowance, in ~~management’s judgment is more likely than not to be recoverable against future taxable income. No U.S. taxes~~a period are ~~provided~~recorded through the income tax provision and could have a material impact on ~~earnings~~the Condensed Consolidated Statements of ~~non-U.S. subsidiaries, to the extent such earnings are deemed to be permanently invested. The Company's~~Comprehensive Loss.

Our income tax calculations are based on application of ~~the respective~~applicable U.S. federal, state, or foreign tax ~~laws. The Company’s~~law. Our tax filings, however, are subject to audit by the respective tax authorities. Accordingly, ~~the Company recognizes~~we recognize tax liabilities based upon ~~its~~our estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different ~~from~~than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the ~~consolidated statements~~Condensed Consolidated Statements of Comprehensive Loss. At March 31, 2020, no deferred taxes have been provided on undistributed earnings from the Company’s international subsidiaries. The Company intends to reinvest the earnings of its non-U.S. subsidiaries in those operations indefinitely. As such, the Company has not provided for any foreign withholding taxes on the earnings of foreign subsidiaries as of March 31, 2020. The earnings of the Company’s foreign subsidiaries are taxable in the U.S. in the year earned under the Global Intangible Low-Taxed Income rules implemented under 2017 Tax Cuts and ~~comprehensive~~Jobs Act.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted. The CARES Act includes, among other things, refundable payroll tax credits, deferment of some employer FICA taxes, allowance of net operating loss carrybacks for up to five years, alternative minimum tax credit refunds, and technical amendments regarding the income ~~(loss)~~tax depreciation of qualified improvement property placed in service after December 31, 2017. The removal of certain limitations on the utilization of NOLs resulted in the Company to recognize an income tax benefit of $2.3 million from the carryback of federal NOLs during the three months ended March 31, 2020.

We record goodwill when the purchase consideration of an acquisition exceeds the fair value of the net tangible and identified intangible assets as of the date of acquisition. We have one operating segment and one operating unit. We perform an annual impairment assessment of goodwill during the fourth quarter of each calendar year or more frequently, if required to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If the carrying amount exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill. There was no goodwill impairment for the three months ended March 31, 2020.

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Our long-lived assets, excluding goodwill, consist of property and equipment and intangible assets. We periodically review our long-lived assets for impairment. For assets to be held and used, we initiate our review whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset group may not be recoverable. Recoverability of an asset group is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset group is expected to generate. If it is determined that an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds its fair value. There was no impairment of long-lived assets for the three months ended March 31, 2020.

See Note 1 of “Notes to Condensed Consolidated Financial Statements (Unaudited)” of 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.~~Condensed Consolidated Financial Statements.

In the fourth quarter of fiscal 2019, in order to enhance the transparency of our revenue reporting, the Company updated its Condensed Consolidated Statements of Comprehensive Loss to change its historical presentation of revenue categories. Previously, the Company presented revenue on two lines: Solutions and Gainshare performance incentives. Included within Solutions, was revenue from software and related revenue, SaaS solutions, Design-for-Inspection (DFI™) licenses, and fixed-price project-based solution implementation services. The previous Gainshare performance incentive category included only revenue from performance incentive programs. The Company now presents revenue in the following categories: Analytics and Integrated Yield Ramp. Integrated Yield Ramp revenue is comprised of all revenue from the Company’s Integrated Yield Ramp services engagements that include performance incentives based on customers’ yield achievement, i.e. both fixed-fees and Gainshare royalty from such engagements. Analytics comprises all other revenue, including from the Company’s licenses and services for Exensio Software, Exensio SaaS, DFI™ and CV systems that do not include performance incentives based on customers’ yield achievement.

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

2858 De La Cruz Blvd.
Santa Clara,, California	95050
(Address of Principal Executive Offices)	(Zip Code)

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

Large accelerated filer ☐	Accelerated filer ☑
Non-accelerated filer ☐	Smaller reporting company ☐☑
	Emerging growth company ☐

~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Common Stock~~	~~PDFS~~	~~The NASDAQ Stock Market LLC~~

	Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of ~~Operations and~~ Comprehensive ~~Income (Loss)~~Loss	4
Condensed Consolidated Statements of Stockholders’ Equity	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3134
Item 4. Controls and Procedures	3235
PART II OTHER INFORMATION
Item 1. Legal Proceedings	3236
Item 1A. Risk Factors	3236
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3336
Item 3. Defaults Upon Senior Securities	3336
Item 4. Mine Safety Disclosures	3336
Item 5. Other Information	3336
Item 6. Exhibits	3437
SIGNATURES	3538
INDEX TO EXHIBITS	3437

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the Quarterly Period ended March 31, 20~~2019~~20

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _______________ to ______________

															Accumulated
					Additional										Other			Total
	Common Stock				Paid-In		Treasury Stock					Accumulated			Comprehensive			Stockholders’
	Shares		Amount		Capital		Shares		Amount			Deficit			Loss			Equity
Balances, December 31, 2019		32,503	$	5	$	325,197		9,294	$	(91,695	)	$	(35,870	)	$	(1,480	)	$	196,157
Issuance of common stock in connection with employee stock purchase plan		89		-		810		-		-			-			-			810
Issuance of common stock in connection with exercise of options		21		-		161		-		-			-			-			161
Vesting of restricted stock units		182		-		-		-		-			-			-			-
Purchases of treasury stock in connection with tax withholdings on restricted stock grants		-		-		-		93		(1,478	)		-			-			(1,478	)
Stock-based compensation expense		-		-		3,513		-		-			-			-			3,513
Comprehensive loss		-		-		-		-		-			(528	)		(166	)		(694	)
Balances, March 31, 2020		32,795	$	5	$	329,681		9,387	$	(93,173	)	$	(36,398	)	$	(1,646	)	$	198,469

	Three Months Ended March 31,
	2019			2018

Revenues:
Solutions	$	16,661		$	18,190
Gainshare performance incentives		3,880			6,547
Total revenues		20,541			24,737

Cost of Solutions
Direct costs of Solutions		7,723			11,338
Amortization of acquired technology		144			144
Total cost of solutions		7,867			11,482
Gross profit		12,674			13,255

Operating expenses:
Research and development		8,246			7,245
Selling, general and administrative		7,011			6,375
Amortization of other acquired intangible assets		108			109
Restructuring charges		92			—
Total operating expenses		15,457			13,729

Loss from operations		(2,783	)		(474	)
Interest and other income (expense), net		(6	)		(331	)
Loss before income taxes		(2,789	)		(805	)
Income tax benefit		(98	)		(381	)
Net loss	$	(2,691	)	$	(424	)

Net loss per share:
Basic	$	(0.08	)	$	(0.01	)
Diluted	$	(0.08	)	$	(0.01	)

Weighted average common shares:
Basic		32,485			32,168
Diluted		32,485			32,168


Net loss	$	(2,691	)	$	(424	)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax		(52	)		525
Comprehensive income (loss)	$	(2,743	)	$	101

																Accumulated
						Additional										Other
	Common Stock					Paid-In		Treasury Stock					Accumulated			Comprehensive
	Shares			Amount		Capital		Shares		Amount			Deficit			Loss			Total
Balances, December 31, 2018		32,382		$	5	$	310,660		8,295	$	(79,142	)	$	(30,452	)	$	(1,276	)	$	199,795
Issuance of common stock in connection with employee stock purchase plan		87			-		782		-		-			-			-			782
Issuance of common stock in connection with exercise of options		87			-		518		-		-			-			-			518
Vesting of restricted stock units		104			-		-		-		-			-			-			-
Purchases of treasury stock in connection with tax withholdings on restricted stock grants		-			-		-		54		(557	)		-			-			(557	)
Repurchases of common stock		(314	)		-		-		314		(3,917	)		-			-			(3,917	)
Stock-based compensation expense		-			-		3,469		-		-			-			-			3,469
Comprehensive loss		-			-		-		-		-			(2,691	)		(52	)		(2,743	)
Balances, March 31, 2019		32,346		$	5	$	315,429		8,663	$	(83,616	)	$	(33,143	)	$	(1,328	)	$	197,347

						Additional										Accumulated Other
	Common Stock					Paid-In		Treasury Stock					Accumulated			Comprehensive
	Shares			Amount		Capital		Shares		Amount			Deficit			Loss			Total
Balances, December 31, 2017		32,112		$	5	$	297,950		7,688	$	(71,793	)	$	(27,089	)	$	(705	)	$	198,368
Cumulative-effect adjustment from adoption of ASU 2014-09		-			-		-		-		-			4,353			-			4,353
Issuance of common stock in connection with employee stock purchase plan		108			-		1,007		-		-			-			-			1,007
Issuance of common stock in connection with exercise of options		8			-		39		-		-			-			-			39
Vesting of restricted stock units		74			-		-		-		-			-			-			-
Purchases of treasury stock in connection with tax withholdings on restricted stock grants		-			-		-		36		(557	)		-			-			(557	)
Repurchases of common stock		(338	)		-		-		338		(4,123	)		-			-			(4,123	)
Stock-based compensation expense		-			-		2,871		-		-			-			-			2,871
Comprehensive income (loss)		-			-		-		-		-			(424	)		525			101
Balances, March 31, 2018		31,964		$	5	$	301,867		8,062	$	(76,473	)	$	(23,160	)	$	(180	)	$	202,059

	Three Months Ended March 31,
	2019			2018
Operating activities:
Net loss	$	(2,691	)	$	(424	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		1,292			1,261
Stock-based compensation expense		3,476			2,856
Amortization of acquired intangible assets		252			253
Deferred taxes		(2,054	)		117
Loss on disposal of property and equipment		—			3
Unrealized loss (gain) on foreign currency forward contract		(2	)		58
Changes in operating assets and liabilities:
Accounts receivable		(1,641	)		(80	)
Prepaid expenses and other current assets		(297	)		(2,183	)
Other non-current assets		50			798
Accounts payable		198			497
Accrued compensation and related benefits		(472	)		(1,278	)
Accrued and other liabilities		415			(532	)
Deferred revenues		429			1,906
Billings in excess of recognized revenues		894			—
Net cash provided by (used in) operating activities		(151	)		3,252
Investing activities:
Purchases of property and equipment		(2,357	)		(2,447	)
Net cash used in investing activities		(2,357	)		(2,447	)
Financing activities:
Proceeds from exercise of stock options		518			39
Repurchases of common stock		(3,917	)		(4,123	)
Proceeds from employee stock purchase plan		782			1,007
Payments for taxes related to net share settlement of equity awards		(557	)		(557	)
Net cash used in financing activities		(3,174	)		(3,634	)
Effect of exchange rate changes on cash and cash equivalents		8			84

Net change in cash and cash equivalents		(5,674	)		(2,745	)
Cash and cash equivalents, beginning of period		96,089			101,267
Cash and cash equivalents, end of period	$	90,415		$	98,522
Supplemental disclosure of cash flow information:
Cash paid during the period for taxes	$	462		$	622
Cash paid for amounts included in the measurement of operating lease liabilities	$	276		$	—

Property and equipment received and accrued in accounts payable and accrued and other liabilities	$	1,284		$	1,185

Year ending December 31,	Amount
2019 (remaining nine months)	$	757
2020		1,009
Year Ending December 31,			Amount
2020 (remaining nine months)			$	952
2021		832		1,093
2022		626		886
2023		626		886
2024 and thereafter		962
2024				747
2025 and thereafter				1,340
Total future amortization expense	$	4,812	$	5,904

Year ending December 31,	Amount^(a)
2019 (remaining nine months)	$	1,381
2020		1,870
Year Ending December 31,				Amount(a)
2020 (remaining nine months)				$	1,529
2021		1,719			1,776
2022		1,536			1,567
2023		1,417			1,350
2024 and thereafter		4,750
2024					1,070
2025 and thereafter					3,789
Total future minimum lease payments	$	12,673		$	11,081
Less: Interest⁽^b⁾		(2,295	)
Present value of operating lease liabilities^(c⁾	$	10,378
Less: Interest(b)					(1,817	)
Present value of future minimum lease payments operating lease liabilities(c)				$	9,264

	^(a)	As of March 31, ~~2019, amounts include~~2020, the total operating lease liability includes approximately $1.0 million related to an option to extend a lease ~~arrangement that commenced on April 1, 2019, with a renewal option~~term that is reasonably certain to be exercised. ~~The total operating lease liability recognized pertaining to the lease arrangement was approximately $1.9 million, of which $0.9 million pertains to the renewal period.~~
	^(b)	Calculated using incremental borrowing interest rate for each lease.
	^(c)	Includes the current portion of operating lease liabilities of ~~$1.9~~$2.0 million as of March 31, ~~2019.~~2020.

	Number of Options (in thousands)			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Outstanding, January 1, 2019		1,027		$	9.75
Granted (weighted average fair value of $4.51 per share)		30		$	11.19
Exercised		(87	)	$	5.98
Canceled		(3	)	$	14.41
Expired		(10	)	$	16.70
Outstanding, March 31, 2019		957		$	10.05		4.62	$	3,191
Vested and expected to vest, March 31, 2019		936		$	9.99		4.52	$	3,167
Exercisable, March 31, 2019		713		$	9.03		3.17	$	2,932

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price per		Term		Value
	(in thousands)			Share		(years)		(in thousands)
Outstanding, January 1, 2020		745		$	10.64
Granted (weighted average fair value of $5.21 per share)		13		$	15.76
Exercised		(21	)	$	7.68
Canceled		(2	)	$	10.66
Expired		(9	)	$	8.86
Outstanding, March 31, 2020		726		$	10.84		4.44	$	1,566
Vested and expected to vest, March 31, 2020		713		$	10.79		4.35	$	1,560
Exercisable, March 31, 2020		562		$	10.10		3.18	$	1,484

	Shares (in thousands)			Weighted Average Grant Date Fair Value Per Share					Weighted
Nonvested, January 1, 2019		1,835		$	11.93
									Average Grant
						Shares			Date Fair Value
						(in thousands)			Per Share
Nonvested, January 1, 2020							1,887		$	12.30
Granted		155		$	12.26		248		$	15.35
Vested		(158	)	$	13.62		(275	)	$	13.52
Forfeited		(41	)	$	12.72		(26	)	$	11.78
Nonvested, March 31, 2019		1,791		$	11.80
Nonvested, March 31, 2020							1,834		$	12.54

				Three Months Ended March 31,
	Three Months Ended March 31, 2019			2020		2019
Beginning balance	$	244		$	—	$	244
Restructuring charges		92			—		92
Cash payments		(245	)		—		(245	)
Ending balance	$	91		$	—	$	91

	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Numerator:
Net loss	$	(2,691	)	$	(424	)	$	(528	)	$	(2,691	)
Denominator:
Basic weighted-average shares outstanding		32,485			32,168			32,703			32,485
Effect of dilutive options and restricted stock		—			—
Effect of dilutive options and restricted stock units								—			—
Diluted weighted average shares outstanding		32,485			32,168			32,703			32,485

Net loss per share - Basic	$	(0.08	)	$	(0.01	)	$	(0.02	)	$	(0.08	)
Net loss per share - Diluted	$	(0.08	)	$	(0.01	)	$	(0.02	)	$	(0.08	)

	Three Months Ended March 31,
Customer	2019			2018
A		36	%		38	%

					March 31,		December 31,
	March 31, 2019⁽¹⁾		December 31, 2018⁽²⁾		2020		2019
United States	$	41,579	$	35,173	$	46,065	$	46,000
Rest of the world		2,696		508		2,312		2,407
Total long-lived assets, net	$	44,275	$	35,681	$	48,377	$	48,407

	~~(1)~~	~~Amounts consist of property and equipment, and operating lease right-of-use assets, net~~
	~~(2)~~	~~Amounts consist of property and equipment, net~~

Level 1 -	Inputs are quoted prices in active markets for identical assets or liabilities.

Level 2 -	Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.

Level 3 -	Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

											Quoted
											Prices in
											Active		Significant
											Markets for		Other		Significant
											Identical		Observable		Unobservable
											Assets		Inputs		Inputs
Assets	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Money market mutual funds	$	27,218	$	27,218	$	—	$	—	$	27,745	$	27,745	$	—	$	—

											Quoted
											Prices in
											Active		Significant
											Markets for		Other		Significant
											Identical		Observable		Unobservable
											Assets		Inputs		Inputs
Assets	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Money market mutual funds	$	27,068	$	27,068	$	—	$	—	$	27,644	$	27,644	$	—	$	—

	•	Total revenues were ~~$20.5~~$21.2 million, which was ~~a decrease~~an increase of ~~$4.2~~$0.6 million, or ~~17%~~3%, compared to the ~~year-ago period. Solutions~~three months ended March 31, 2019. Analytics revenue was ~~$16.7~~$13.2 million, which was ~~a decrease~~an increase of ~~$1.5~~$1.8 million, or 8%16%, compared to the ~~year-ago period.~~three months ended March 31, 2019. The ~~decrease~~increase in ~~Solutions~~Analytics revenue was primarily driven by $1.5 million higher business activity in licenses and services for our Exensio products, and $1.5 million increase in Characterization Vehicle (CV) services due to higher hours worked across multiple contracts and customers. The increase was offset by $1.2 million lower revenue from Design-for-Inspection™ (DFI™) systems and services. Integrated Yield Ramp revenue decreased $1.2 million for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, due primarily to a $3.3 million decrease in revenue from our yield ramp ~~solutions resulting~~services from lower hours worked across multiple contracts and customers, ~~which was~~ partially offset by ~~increases~~a $2.1 million increase in ~~Exensio big data solution revenues that were driven by strong business activity.~~ Gainshare ~~performance incentives revenue was $3.9 million, a decrease of $2.7 million, or 41%, compared to~~royalty from the ~~year-ago period. The decrease was primarily due to lower Gainshare performance incentives revenue from 28nm and~~ 14nm technology nodes.

	•	~~Gross margin~~Costs of revenues increased $0.6 million for the three months ended March 31, ~~2019 was 62%,~~2020, compared to ~~54% for the year-ago period. During~~ the three months ended March 31, 2019, ~~our gross profit was significantly higher than the prior period~~primarily due ~~primarily~~ to ~~recognition of Solutions revenue of $3.3~~(i) a $0.6 million ~~from a customer contract amendment, and reduction~~increase in ~~headcount primarily~~direct costs related to ~~our yield ramp~~third-party software royalty and licenses expense, equipment and hardware expense related to a new customer engagement, and amortization of deferred costs, and (ii) a $0.7 million increase in information technology-related costs and facilities expense mainly due to higher cloud-delivery related costs and depreciation expense of test equipment, partially offset by (i) a $0.5 million decrease in personnel-related costs, and (ii) a $0.2 million decrease in travel expenses resulting from lesser business ~~which is a cost~~travel in the first quarter of ~~revenues. Cost~~2020 due to the global COVID-9 pandemic.

	•	Gross margin of ~~solutions decreased~~60%, compared to 62% for the three months ended March 31, 2019, compared to the year-ago period, primarily due to (i) a $2.7 million decrease in personnel-related cost driven by (i) lower headcount and lower chargeable hours incurred across multiple contracts and customers, and a decrease in stock-based compensation expense, partially offset by a provision for discretionary employee bonus for fiscal 2019, (ii) a $0.4 million decrease in hardware and equipment expense due to lesser solutions revenue, and (iii) a $0.3 million decrease in travel expenses resulting from our cost management effort. These increases in gross margin were partially offset by a $2.7 million decrease in Gainshare performance incentives.

	•	Net loss was $2.7 million, compared to net loss of $0.4 million for the year-ago period. The increase in net loss was primarily attributable to 17% lower revenues, and a lower tax benefit mainly driven by the changes in forecasted income/loss between fiscal 2019 and 2018, and lower excess tax benefit for employee stock compensation compared to the year-ago period, partially offset by a $1.9 million decrease in cost of solutions and operating expenses related to a decrease in personnel-related costs driven by lower headcount, decrease in equipment, travel and subcontractor expenses, and foreign exchange loss. 2019.

	•	Net loss ~~per basic and diluted share~~ was ~~$(0.08)~~$0.5 million, compared to $2.7 million for the three months ended March 31, ~~2019, which was an increase~~2019. The decrease in net loss was primarily attributable to a $0.6 million increase in revenues and a $3.4 million increase in tax benefits, partially offset by a $0.6 million increase in costs of ~~$0.07 per basic~~revenues, and ~~diluted share, compared~~a $1.2 million increase in operating expenses as we continued to ~~net loss per basic~~make investments in research and ~~diluted share of ($0.01), for the year-ago period.~~ development sales and marketing activities.

	•	Cash, cash equivalents and investments ~~decreased $5.7~~increased $2.8 million to ~~$90.4~~$100.4 million at March 31, ~~2019,~~2020, from ~~$96.1~~$97.6 million at December 31, ~~2018,~~2019, primarily due to the collection of accounts receivables, partially offset by cash used in investing activities related to the property and equipment purchased for the development ~~our DFI solution, new office headquarters and expansion~~ of our ~~research and development laboratory and clean room, and cash used in financing activities primarily due to repurchases of our common stock.~~DFI™ solution.

	For the Three Months Ended March 31, 2019
			Change in
	Previously		Presentation			Current
	Reported		Reclassification			Presentation
Revenues:
Design-to-silicon-yield solutions	$	16,661	$	(16,661	)		N/A
Gainshare performance incentives		3,880		(3,880	)		N/A
Analytics		N/A		11,434		$	11,434
Integrated Yield Ramp		N/A		9,107			9,107
Total revenues	$	20,541	$	—		$	20,541

	Three Months Ended March 31,						Change
	2020			2019			$			%
(Dollars in thousands)
Revenues:
Analytics	$	13,248		$	11,434		$	1,814			16	%
Integrated Yield Ramp		7,910			9,107			(1,197	)		(13	)%
Total revenues	$	21,158		$	20,541		$	617			3	%
Costs of revenues		8,487			7,867			620			8	%
Gross profit	$	12,671		$	12,674		$	(3	)		—	%
Gross margin		60	%		62	%

Analytics revenue as a percentage of total revenues		63	%		56	%
Integrated Yield Ramp revenue as a percentage of total revenues		37	%		44	%

	Three Months Ended March 31,						$			%
(Dollars in thousands)	2019			2018			Change			Change
Solutions	$	16,661		$	18,190		$	(1,529	)		(8	%)
Gainshare performance incentives		3,880			6,547			(2,667	)		(41	%)
Total revenues	$	20,541		$	24,737		$	(4,196	)		(17	%)
Solutions revenue as a percentage of total revenues		81	%		74	%
Gainshare performance incentives as a percentage of total revenues		19	%		26	%

	Three Months Ended
	March 31,						$		%			Three Months Ended March 31,						Change
(Dollars in thousands)	2019			2018			Change		Change			2020			2019			$		%
Selling, general and administrative	$	7,011		$	6,375		$	636		10	%	$	7,895		$	7,011		$	884		13	%
As a percentage of total revenues		34	%		26	%							37	%		34	%

	●	Accounts receivable ~~increased~~decreased by ~~$1.6~~$3.3 million, primarily due to ~~slower payments from a few customers despite a decrease~~increased collection and lower invoicing activity due to the decline in ~~revenues. Days~~revenue during the quarter, partially offset by increase in unbilled accounts receivables due to timing of ~~sales outstanding, or DSO,~~billing and revenue recognition.

	●	Prepaid and other current assets increased by $1.9 million, primarily due to ~~slower payments~~increase in income tax receivable, partially offset by ~~certain customers~~decrease in ~~Asia. We have not incurred any significant write-offs~~contract assets due to timing of ~~accounts receivable during the three months ended March 31, 2019~~billing and revenue recognition related to our fixed-price service contracts.

	●	Other noncurrent assets decreased by $1.9 million, primarily due to decrease in ~~fiscal year 2018.~~ noncurrent portion of unbilled receivables due to timing of billing and revenue recognition.

	●	~~Billings in excess of recognized~~Deferred revenues increased by ~~$0.9~~$1.0 million, primarily due to timing of billing and revenue recognition.

	Payments Due by Period
Contractual Obligations	2019 (remaining nine months)		2020		2021		2022		2023		2024 and thereafter		Total
Operating lease obligations(1)	$	1,381	$	1,870	$	1,719	$	1,536	$	1,175	$	3,673	$	11,354
Purchase obligations(2)		7,149		678		401		8		4		‒		8,240
Total(3)	$	8,530	$	2,548	$	2,120	$	1,544	$	1,179	$	3,673	$	19,594

	Payments Due by Period
	2020
	(remaining										2025 and
Contractual Obligations	nine months)		2021		2022		2023		2024		thereafter		Total
Operating lease obligations(1)	$	1,529	$	1,776	$	1,567	$	1,108	$	806	$	2,976	$	9,762
Purchase obligations(2)		8,422		2,905		447		364		320		321		12,779
Total(3)	$	9,951	$	4,681	$	2,014	$	1,472	$	1,126	$	3,297	$	22,541

	(1)	Refer to Note 4, Leases of the Notes to Condensed Consolidated Financial Statements (Item 1 of Part I of this Report)

	(2)	Purchase obligations consist of agreements to purchase goods and services entered in the ordinary course of business.

	(3)	The contractual obligation table above excludes liabilities for uncertain tax positions of ~~$3.2~~$2.6 million, which are not practicable to assign to any particular years, due to the inherent uncertainty of the tax positions. See Note 8 of “Notes to Condensed Consolidated Financial Statements” for further discussion.

Period	Total Number of Shares Purchased (in thousands) (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs (in thousands) (1)		Approximate Dollar Value of Shares that May Yet Be Purchased Under Programs (in thousands) (1)
January 1, 2019 through January 31, 2019		—	$	—		—	$	25,000
February 1, 2019 through February 28, 2019		—	$	—		—	$	25,000
March 1, 2019 through March 31, 2019		314	$	12.46		314	$	21,084
Total		314	$	12.46		314

Exhibit Number		Description
10.1
~~3.01~~		~~Amended and Restated Bylaws of PDF Solutions, Inc., effective~~Employment offer to Adnan Raza, dated January ~~28, 2019~~23, 2020 (incorporated herein by reference to ~~Exhibit 3.1 to registrant’s Current Report~~registrant's filing on Form ~~8-K,~~10-K filed ~~January 28, 2019)~~on March 10, 2020).*

~~3.02~~10.2		Amended and Restated ~~Bylaws of~~Offer Letter Agreement between Christine Russell and PDF Solutions, Inc.~~, effective April 26, 2019~~ dated March 9, 2020 (incorporated herein by reference to ~~Exhibit 3.1 to registrant’s Current Report~~registrant's filing on Form ~~8-K,~~8-K/A filed ~~May 1, 2019)~~on March 12, 2020).*

~~10.01~~		~~Offer letter to Cornelis D. Hartgring from PDF Solutions, Inc. dated October 26, 2018.*†~~

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.†

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.†

32.01		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.02		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS		XBRL Instance Document.†

101.SCH		XBRL Taxonomy Extension Schema Document.†

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.†

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.†

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.†

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.†