8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of Earliest Event Reported): October 26, 2017

PDF SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

000-31311

(Commission File Number)

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

333 West San Carlos Street, Suite 1000

San Jose, CA 95110

(Address of principal executive offices, with zip code)

(408) 280-7900

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

Emerging growth company ☐

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

TABLE OF CONTENTS

Item 2.02. Results of Operations and Financial Condition

Item 9.01. Financial Statements and Exhibits

SIGNATURES

EXHIBIT INDEX

Item 2.02. Results of Operations and Financial Condition.

On October 26, 2017 PDF Solutions (the “Company”) issued a press release regarding its financial results and certain other information related to the third fiscal quarter ended September 30, 2017. The Company also posted on the Investor Relations section of its website (www.pdf.com) a management report with regard to the quarter ended September 30, 2017. Copies of the press release and management report are attached to this report as Exhibit 99.1 and 99.2, respectively. Information on the website is not, and will not be deemed, a part of this report or incorporated into any other filings the Company makes with the Securities and Exchange Commission.

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

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	Press Release dated October 26, 2017, regarding financial results and certain other information related to the third fiscal quarter ended September 30, 2017.
99.2	Management Report by PDF Solutions, Inc. as of October 26, 2017

SIGNATURES

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

PDF SOLUTIONS, INC. (Registrant)
By:	/s/Gregory C. Walker
	Gregory C. Walker VP, Finance, and Chief Financial Officer (principal financial and accounting officer)

Dated: October 26, 2017

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release dated October 26, 2017, regarding financial results and certain other information related to the third fiscal quarter ended September 30, 2017.
99.2	Management Report by PDF Solutions, Inc. as of October 26, 2017.

EX-99.1

Exhibit 99.1

News Release

Company Contacts:
Gregory Walker,	Sonia Segovia,
VP, Finance and CFO	IR Coordinator
Tel: (408) 938-6457	Tel: (408) 938-6491
Email:gregory.walker@pdf.com	Email: sonia.segovia@pdf.com

PDF Solutions^® Reports Third Fiscal Quarter Results

SAN JOSE, Calif.— October 26, 2017—PDF Solutions, Inc. (“PDF Solutions” or the “Company”) (NASDAQ: PDFS), the leading provider of process-design integration technologies to enhance integrated circuit (IC) manufacturability, today announced financial results for its third fiscal quarter ended September 30, 2017.

Total revenues for the third fiscal quarter of 2017 totaled $26.5 million, up 9% from $24.3 million for the second fiscal quarter of 2017 and down 3% from $27.3 million for the third fiscal quarter of 2016. Design-to-silicon-yield solutions revenue for the third fiscal quarter of 2017 totaled $19.2 million, up 17% from $16.5 million for the second fiscal quarter of 2017 and up 4% from $18.6 million for the third fiscal quarter of 2016. Gainshare performance incentives revenue for the third fiscal quarter of 2017 totaled $7.3 million, down 6% from $7.8 million for the second fiscal quarter of 2017 and down 16% from $8.7 million for the third quarter of 2016.

On a GAAP basis, net income for the third fiscal quarter of 2017 was $0.6 million, or $0.02 per basic and diluted share, compared to net income of $0.2 million, or $0.01 per basic and diluted share, for the second fiscal quarter of 2017, and compared to net income of $2.0 million, or $0.06 per basic and diluted share, for the third fiscal quarter of 2016.

Cash and cash equivalents were $100.8 million at September 30, 2017, compared to $116.8 million at December 31, 2016.

Non-GAAP net income for the third fiscal quarter of 2017 was $3.6 million, or $0.11 per diluted share, compared to $2.7 million, or $0.08 per diluted share, for the second fiscal quarter of 2017, and compared to $5.4 million, or $0.17 per diluted share, for the third fiscal quarter of 2016. EBITDAR for the third quarter of 2017 was $5.1 million, compared to $3.7 million for the second fiscal quarter of 2017 and compared to $7.2 million for the third fiscal quarter of 2016.

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

Third Quarter 2017 Financial Commentary Available Online

A Management Report reviewing the Company’s third quarter 2017 financial results, as well as providing updated 2017 financial outlook, will be furnished to the SEC on Form 8-K and published on the Company’s website at http://ir.pdf.com/financial-reports. Analysts and investors are encouraged to review this commentary prior to participating in the conference call webcast.

Information Regarding Use of Non-GAAP Financial Measures

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

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Forward-Looking Statements

The statements made on the planned conference call regarding the Company's future expected business performance and financial results are forward looking and are subject to events and circumstances of the future. Actual results could differ materially from those expressed in these forward-looking statements. Risks and uncertainties that could cause results to differ materially include risks associated with: customers' production volumes at Gainshare-covered facilities; continued adoption of the Company's solutions by new and existing customers; project milestones or delays and performance criteria achieved; the provision of technology and services prior to the execution of a final contract; and other risks set forth in PDF Solutions' periodic public filings with the Securities and Exchange Commission, including, without limitation, its Annual Reports on Form 10-K, most recently filed for the year ended December 31, 2016, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K and amendments to such reports. The forward-looking statements made in the conference call are made as of the date hereof, and PDF Solutions does not assume any obligation to update such statements nor the reasons why actual results could differ materially from those projected in such statements.

About PDF Solutions

PDF Solutions enables customers to reduce the time to market of integrated circuits (“ICs”), lower the cost of IC design and manufacturing and improve both quality and profitability. The Company has developed proprietary hardware and software and provides services that target the entire systems value chain, which is a term we use that means the activities from technology development and the design of a semiconductor product through volume manufacturing of devices and subsequent system assembly and test.

PDF Solutions’ products and services consist of proprietary test structures and electrical test systems, physical intellectual property, enterprise platform software and professional services. The Company’s Characterization Vehicle^® (CV^®) electrical test chip infrastructure provides core modeling capabilities, and is used by more leading manufacturers than any other test chips in the industry. The Design-for-Inspection™ solution includes the proprietary eProbe^® e-beam tool and extends the Company’s electrical characterization technologies into the e-beam measurement of extremely dense test structures, or DFI™ cells, across an entire fabrication process. Proprietary Template^™ layout patterns for standard cell libraries optimize area, performance, and manufacturability for designing IC products. The Exensio^® platform for big data unlocks relevant, actionable information buried in wafer fabrication, process control and test data through key components: Exensio^® -Yield, Exensio^® -Control, Exensio^® -Test, Exensio^® -ALPS, and Exensio^® -Char. The Exensio^® platform is available either on-premise or via software as a service (SaaS).

Headquartered in San Jose, Calif., PDF Solutions operates worldwide with additional offices in Canada, China, France, Germany, Italy, Japan, Korea, and Taiwan. PDF Solutions is listed on The NASDAQ National Market under the ticker symbol PDFS. For the Company’s latest news and information, visit http://www.pdf.com/.

Characterization Vehicle, CV, Exensio, eProbe, PDF Solutions, and the PDF Solutions logo are registered trademarks of PDF Solutions, Inc. or its subsidiaries. ALPS, Design-for-Inspection, DFI, and Template are trademarks of PDF Solutions, Inc. or its subsidiaries.

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PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands)

	September 30,			December 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	100,750		$	116,787
Accounts receivable, net		52,954			48,157
Prepaid expenses and other current assets		6,580			5,335
Total current assets		160,284			170,279
Property and equipment, net		23,604			19,341
Goodwill		1,873			215
Intangible assets, net		6,375			4,223
Deferred tax assets		18,522			15,640
Other non-current assets		11,312			12,631
Total assets	$	221,970		$	222,329
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,608		$	2,206
Accrued compensation and related benefits		5,450			5,959
Accrued and other current liabilities		2,642			2,080
Deferred revenues - current portion		7,624			8,189
Billings in excess of recognized revenue		289			88
Total current liabilities		18,613			18,522
Long-term income taxes payable		2,914			3,354
Other non-current liabilities		2,146			1,650
Total liabilities		23,673			23,526
Stockholders’ equity:
Common stock and additional paid-in-capital		294,364			281,428
Treasury stock at cost		(70,739	)		(54,882	)
Accumulated deficit		(24,455	)		(25,752	)
Accumulated other comprehensive loss		(873	)		(1,991	)
Total stockholders’ equity		198,297			198,803
Total liabilities and stockholders’ equity	$	221,970		$	222,329

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PDF SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share amounts)

	Three months ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2017			2017			2016 (1)			2017			2016 (1)
Revenues:
Design-to-silicon-yield solutions	$	19,229		$	16,500		$	18,552		$	55,426		$	57,704
Gainshare performance incentives		7,288			7,789			8,707			19,668			21,324
Total revenues		26,517			24,289			27,259			75,094			79,028
Costs of Design-to-silicon-yield solutions:
Direct costs of Design-to-silicon-yield solutions		12,295			11,283			11,366			34,913			32,034
Amortization of acquired technology		136			96			86			327			278
Total costs of Design-to-silicon-yield solutions		12,431			11,379			11,452			35,240			32,312
Gross profit		14,086			12,910			15,807			39,854			46,716
Operating expenses:
Research and development		7,875			7,276			7,017			22,432			20,388
Selling, general and administrative		5,680			6,195			5,548			17,775			15,766
Amortization of other acquired intangible assets		107			92			106			291			340
Total operating expenses		13,662			13,563			12,671			40,498			36,494
Income (loss) from operations		424			(653	)		3,136			(644	)		10,222
Interest and other income (expense), net		(104	)		27			(101	)		(305	)		(389	)
Income (loss) before income taxes		320			(626	)		3,035			(949	)		9,833
Income tax provision (benefit)		(270	)		(815	)		1,051			(2,246	)		3,655
Net income	$	590		$	189		$	1,984		$	1,297		$	6,178
Net income per share:
Basic	$	0.02		$	0.01		$	0.06		$	0.04		$	0.20
Diluted	$	0.02		$	0.01		$	0.06		$	0.04		$	0.19
Weighted average common shares:
Basic		32,078			32,111			31,413			32,060			31,286
Diluted		32,969			33,388			32,578			33,317			32,144

(1)The results for the three and nine months ended September 30, 2016 have been updated to reflect the Company’s adoption of the Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The Company elected to early adopt this new standard in the fourth quarter of 2016, which required that any adjustments be reflected as of January 1, 2016, the beginning of the fiscal year that includes the interim period of adoption.

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PDF SOLUTIONS, INC.

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

(In thousands, except per share amounts)

	Three months ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2017			2017			2016 (1)(3)			2017			2016 (1)(3)
GAAP net income	$	590		$	189		$	1,984		$	1,297		$	6,178
Adjustments to reconcile GAAP net income to non-GAAP net income:
Stock-based compensation expense		2,949			2,904			2,977			8,737			7,935
Amortization of acquired technology		136			96			86			327			278
Amortization of other acquired intangible assets		107			92			106			291			340
Non-recurring severance payment (2)		370			-			-			370			-
Adjustment for Non-Cash items in Income Tax Expense		817			998			1,382			2,650			3,908
Tax Adjustment for Non-GAAP items		(1,407	)		(1,627	)		(1,146	)		(4,864	)		(2,763	)
Non-GAAP net income	$	3,562		$	2,652		$	5,389		$	8,808		$	15,876
GAAP net income per diluted share	$	0.02		$	0.01		$	0.06		$	0.04		$	0.19
Non-GAAP net income per diluted share	$	0.11		$	0.08		$	0.17		$	0.26		$	0.49
Shares used in diluted shares calculation		32,969			33,388			32,578			33,317			32,144

PDF SOLUTIONS, INC.

RECONCILIATION OF GAAP NET INCOME TO EBITDAR (UNAUDITED)

(In thousands, except per share amounts)

	Three months ended								Nine months ended
	September 30,			June 30,			September 30,		September 30,			September 30,
	2017			2017			2016 (1)(3)		2017			2016 (1)(3)
GAAP net income	$	590		$	189		$	1,984	$	1,297		$	6,178
Adjustments to reconcile GAAP net income to EBITDAR:
Stock-based compensation expense		2,949			2,904			2,977		8,737			7,935
Amortization of acquired technology		136			96			86		327			278
Amortization of other acquired intangible assets		107			92			106		291			340
Non-recurring severance payment (2)		370			-			-		370			-
Depreciation expense		1,262			1,196			960		3,549			2,584
Income tax provision (benefit)		(270	)		(815	)		1,051		(2,246	)		3,655
EBITDAR	$	5,144		$	3,662		$	7,164	$	12,325		$	20,970

(1)The results for the period ended September 30, 2016 have been updated to reflect the Company’s adoption of the Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The Company elected to early adopt this new standard in the fourth quarter of 2016, which required that any adjustments be reflected as of January 1, 2016, the beginning of the fiscal year that includes the interim period of adoption.

(2)These are non-recurring severance payments related to reduction in workforce. The Company is excluding these costs in order to provide better comparability between periods.

(3)The results for the period ended September 30, 2016  have been updated to exclude deferred revenue adjustments from Syntricity acquisition that were previously presented in the prior periods. As a result of this exclusion, non-GAAP net income per diluted share for the nine months ended September 30, 2016 was changed from $0.50 per share to $0.49 per share. There was no change in the non-GAAP net income per diluted share for the three months ended September 30, 2016.

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EX-99.2

Exhibit 99.2