PDFS 10-K & 10-Q changes, risk factors and insider trading

As part of the evolution of our business, we have made and continue to make substantial investments in research and development of our products and services, including, in particular, our DFIDirectScan system and ExensioExensio, Sapience, and SapiencesecureWISE software. New competitors, changes to existing contracts with licensed technology, any companies, products, or services that we may acquire, technological advances in the semiconductor industry and adjacent markets, and other competitive factors have required us and may continue to require us to invest significantly greater resources than we anticipated. For example, following our acquisition in July 2023 of Lantern Machinery Analytics, Inc., an early-stage battery solutions provider, we invested in research and development to expand the application of our existing products and services to battery manufacturers. If we do not anticipate and address technological changes in our industry or our offerings fail to meet market demand, the corresponding additional revenue we anticipate may not materialize, we may not recoup our investment or capture the market share we anticipate, we may lose our competitive position, and our products may become obsolete, which would adversely impact our business, financial condition and results of operations. Additionally, our periodic research and development expenses may be independent of our level of revenue, which could negatively impact our financial results.

If we are unable to close new engagements or amendments to existing contracts on terms favorable to us, in a timely manner, or at all, including in cases where we have incurred costs or assigned engineering resources in advance of entering into such engagements or amendments, our revenues may fall short of expectations and other revenue opportunities may have been delayed or lost. Further, the timing and length of negotiations required to enter into agreements with our customers and the enforcement of our complex contractual provisions is difficult to predict. If we do not successfully negotiate certain key complex contractual provisions, if there are disputes regarding such provisions, or if they are not enforceable as we intended, our revenues and results of operations would suffer. Further, our customers sometimes delay starting negotiations until they begin developing a new process, have a need for a new product, or experience specific yield issues. This means that, in certain instancesinstances, we have continued, and may continue to provide technology and services under preliminary documentation before executing the final contract. In these cases, we would not recognize revenue and may defer associated costs until execution of a final contract, which, if significant, could negatively impact our results of operations in the periods before we execute a final contract. Further, if we were to incur significant costs and then fail to enter into a final contract, we would have to write-off such deferred costs in the period in which the negotiations ended, which would increase our costs and expenses and could result in significant operating losses.

We rely on sole-source providers for certain software as well as for specialized parts for our eProbeDirectScan hardwaresystem and supply-chain delays or disruptions could increase our costs or impact our ability to provide complete software solutions or to build additional hardware tools or meet customer expectations or deadlines, which could result in lost sales and lower earnings.

We provide some enabling technology under license and support from sole-source providers and some of our vendors provide highly specialized, differentiated products and services related to our eProbeDirectScan system. In the event these licensors or vendors delay or discontinue providing such products and services to us, it may be difficult and costly or impossible for us to replace such suppliers or parts. In the case of licensed software, this could impact our ability to grow our sales or to meet the support expectations of our customers and we may need to resort to legal action, which could limit our future sales, harm our reputation, increase our costs, and harm our earnings. For example, in November 2023, a provider of enabling technology abruptly stopped providing maintenance and support of their software product to us. As a result, we resorted to legal action, which caused us to incur increased legal expenses beginning in the fourth quarter of 2023. The matter is ongoing, and the long-term impact of this provider’s actions on our business and our customers is unknown at this time. In the case of vendors related to our eProbe tool, such disruptions or delays could delay or stop our ability to complete and deliver our DFIDirectScan systems as currently designed to our customers, which would negatively impact our bookings and revenue related to such systems. In addition, such delays or disruptions to our supply chain could significantly increase our component costs, or personnel-related costs if we need to build a replacement solution in the case of certain software elements, and could impact our ability to build future generations or models of our eProbe tools, any of which would decrease or delay our sales, earnings, and liquidity and could otherwise adversely affect our business and result in increased costs. Such a delay or disruption could occur as a result of any number of events, including, but not limited to: failure to comply with existing contracts, higher priority alternative buyers, inflation and global interest rates increasing component costs, a closure or slowdown at our suppliers’ plants or shipping delays, market shortages for critical components, increases in prices, the imposition of regulations, quotas, embargoes or tariffs on components or our products, labor stoppages or shortages, our suppliers’ supply chain disruptions, third-party interference, cyberattacks, severe weather conditions including the adverse effects of climate change-related events, geopolitical developments, war or terrorism, and disruptions in utilities and other services. In addition, the development, licensing, or acquisition of new products in the future may increase the complexity of supply chain management. Failure to effectively manage our supply of components and products could adversely affect our business.

Historically, we have had a small number of large customers that contribute significant revenues. In the year ended December 31, 2024,2025, twothree customers accounted for 31%53% of our total revenues. We have in the past and could in the future lose a customer due to its decision not to develop or produce its own future process node or not to engage us on future process nodes. We could also lose customers as a result of industry factors, including but not limited to reduced manufacturing volume or consolidation. Consolidation among our customers could also lead to increased customer bargaining power, or reduced customer spending on software and services. Further, new business may be delayed or prevented if a key customer uses its leverage to insist on terms that are worse for us and we delay entering into the contract to negotiate for better terms or decide not to enter into the contract at all, in which case revenue in any particular quarter or year may fail to meet expectations and our reliance on our remaining customers could increase.

Further, if any of our key customers default, declare bankruptcy or otherwise delay or fail to pay amounts owed, or we otherwise have a dispute with any of these customers, our results of operations would be negatively affected in the short term and possibly the long term. For example, excludingin contingent fee arrangements, we incurred substantial expenses related to the arbitration with2019, SMIC New Technology Research & Development (Shanghai) Corporation duestopped to SMIC’s failure to paypaying fees due to us under a series of contracts. In 2025,addition ifto the loss of contract revenue under these contracts after that time, we areincurred awarded any contract fees under the arbitration, we will incur additionalsignificant expenses related to pursuing our legal rights under these contracts, including $2.5 million of attorneys’ fees thatincurred are contingent on such a favorable result, which may be substantial depending onin the sizefourth quarter of any award.2025. The loss of significant expected revenue from any of our key customers would cause significant fluctuations in results of operations because our expenses are fixed in the short term and it takes us a long time to replace customers or reassign resources.

If we do not continuously meet our development milestones of key research and development projects or market adoption of our DFIDirectScan system fails to meet our expectations, our future market opportunity and revenues will suffer, and our costs may not be recouped.

We have invested significantly in the design and development of our eProbe tool and related IP. Key customers failing to purchase, renew, or expand the number or use of such systems on our expected timeline or at all will cause our results to miss expectations. Also, if customers are not able to achieve the results they expect using our DFIDirectScan system, including new applications, customers may not continue to adopt this system or such applications as we expect, or at all, and we may miss the market opportunity and not recoup our investment. Further, our eProbe tool could cause unexpected damage to wafers or delay processing wafers, which we could be liable for, or which could make customers unwilling to use the tool. If we are not able to create significant interest and show reliable and useful results without significant damage to wafers, our investment may not be recouped and our future results may suffer.

Export Regulations are fluid, complex, and uncertain, and there are ongoing efforts throughout the industry in coordination with regulators to revise, clarify, and interpret Export Regulations. The U.S. Congress and regulators continue to consider significant changes in laws and regulations. For example, the U.S. government is reportedly considering whether and/or how to impose restrictions directly on cloud-hosted services and further restrictions directly on U.S. person activity. We cannot predict the impact that additional legal changes may have on our business in the future. For example, the U.S. Bureau of Industry and Security (“BIS”) recently extended controls to renewal licenses for certain lawfully delivered products that would have changed status under new regulations and designations, causing us to decline certain renewals. Also, BIS has placed certain entities on and frequently adds entities to its entity list (the “Entity List”), which restricts supply of items to or in connection with the named entities and impacts our ability to transact business with certain customers. BIS has issued a rule extending Entity List restriction to non-listed foreign companies owned at least 50% by parties on the Entity List, and suspended this rule until November 2026. Further, in some circumstances Export Regulations require a license to export an item if the recipient will use the item to design or produce an item for a Huawei-affiliated company or certain other organizations on the Entity List. These regulations can also require licenses for exports that involve Chinese military or intelligence-related end users or end uses.

Future changes in Export Regulations, including changes in theprocessing enforcementrequests, enforcement, and the scope of such regulations, may create delays in the introduction of our products or services in international markets or could prevent our customers with international operations from deploying our products or services globally. In some cases, such changes could prevent the export of our products or services to certain countries, governments, entities or individuals altogether. Any such delays or restrictions could adversely affect our business, financial condition and results of operations. For further discussion, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Decreases in wafer volumes at our customers’ manufacturing sites or the volume of ICs that some of our customers are able to sell to their customers would cause our Integrated Yield RampVolume-based revenue to suffer.

Our Integrated Yield RampVolume-based revenue includes amounts largely determined by variable wafer volumes at manufacturing sites covered by our contracts and, in some cases, determined by the volume of an IC product that our customer is able to sell to its customers. Both of these factors are outside of our control. In recent years, we saw significant reduction in our Integrated Yield RampVolume-based revenue due to these trends. Further, some of our manufacturing customers’ business is largely dependent on customers that use our manufacturing customer as a second or third source. If those customers consolidate and/or otherwise move the orders to manufacturing facilities not covered by our contracts, or suspend their manufacturing at covered facilities for any reason, including consolidation, our Integrated Yield RampVolume-based revenue will continue to decrease, which could negatively affect our financial results. Further, reduced demand for semiconductor products or protectionist policies like those stemming from the complex relationships among China, Hong Kong, Taiwan, and the United States has from time to time decreased and may continue to decrease the volume of wafers and, in some cases, products our customers are able to make or sell, which would also decrease our Integrated Yield RampVolume-based revenue. Also, our customers may unilaterally decide to implement changes to their manufacturing processes during the period that volume is covered by royalty contracts, which could negatively affect yield results and, thus, our Integrated Yield RampVolume-based revenue.

Since we currently work on a small number of large projects at specified manufacturing sites and, in some cases, on specific IC products, our results of operations have been and may continue to be adversely affected by negative changes at those sites or in those products, including slowdowns in manufacturing due to external factors, such as U.S. trade restrictions, tariffs, rising inflation and global interest rates, or continued or worsening supply chain disruptions. Also, if wafer orders from sites covered by our contracts are not secured by our customers, if an end product does not achieve commercial viability, if a process line or, in some cases, a specific product, does not achieve significant increases in yield or sustain significant volume manufacturing during the time we receive royalties, revenues associated with such volumes or products would be negatively impacted. This could significantly reduce our Integrated Yield RampVolume-based revenue and our results of operations could fail to meet expectations. In addition, if we work with two directly competitive manufacturing facilities or products, volume in one may offset volume, and thus any of our related revenue, in the other facility or product.

Our customers are global semiconductor companies, which means that our operations and performance depend significantly on worldwide economic and geopolitical conditions as well as semiconductor market specific changes. Current global economic conditions and uncertainty about future conditions including war, terrorism, geopolitical uncertainties and other business interruptions could result in damage to, disruption, postponement or cancellation of sales of our products or services on a global or regional basis. Several nations have recently conducted or threatened military or hybrid-warfare operations tied to or affecting operational regions of the semiconductor industry. In the future such conflict could damage participants, disrupt international business, and reduce supply and demand in our industry, including for our products and services. Furthermore, tariffs, trade controls, export and import regulations, tighter credit, higher interest rates, inflationary concerns, large-scale unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors could have a material adverse effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition and/or vendors with which we do business. For example, the timing of the build-out of the semiconductor market in China depends significantly on governmental funding on both local and national levels and a delay in this funding could negatively affect our revenues. Further, the U.S. federal government has recently stated its intention to change U.S. trade policy, including potentially renegotiating or terminating existing trade agreements and leveraging tariffs. In February 2025, the U.S. imposed additional tariffs on imports from China and announced and subsequently paused implementation of tariffs on imports from Canada and Mexico. The U.S. government has changed policy by imposing or threatening to impose certain additional tariffs expressly in pursuit of foreign policy goals. Some possible tariffs could significantly increase cost of imported goods. These additional tariffs, as well as a government’s adoption of “buy national” policies or retaliation by another government against such tariffs or policies, have introduced significant uncertainty into the market and may affect the prices of and demand for our and our customers’ products. Further, the semiconductor industry historically has been volatile with up cycles and down cycles, due to sudden changes in customers’ manufacturing capacity requirements and spending, which depend in part on capacity utilization, demand for customers’ IC products by consumers, inventory levels relative to demand, and access to affordable capital. As a result of the various factors that affect this volatility, the timing and length of any cycles can be difficult to predict and could be longer than anticipated. Any of these events could negatively affect our revenues and make it challenging or impossible for us to deliver products and services to our customers forecast our operating results, make business decisions, and identify the risks that may affect our business, financial condition and results of operations. Customers with liquidity issues may also lead to additional credit losses.

Since certain of our current software requires commercially-available, third-party programs to run as intended and some of our contracts with licensors limit the industry in which we can resell such third-party programs, we face challenges to provide a comprehensive solution to battery manufacturers. If we or our customers are unable to procure required third-party programs that can be used in connection with our products for battery manufacturing, or the cost to do so is higher than expected, we may miss the market opportunity, which would mean lower sales than expected, or our costs may be higher, which would mean lower earnings than expected. Further, if we are unable to develop a suitable product that is not limited by such third-party restrictions and meets the market’s needs or the costs to do so isare higher, or the time required to do so, is longer than expected, we may lose future business opportunities and our results of operations will suffer.

Measurement of our variable consideration sometimes requirerequires data collection and customers’ use of estimates and are contingent upon customers’ consent and may be later offset if actual data differ from customers’ estimates, which can result in uncertainty and cause quarterly results to fluctuate.

We can only recognize volume- or average selling price- (“ASP”) based royalties once we have reached agreement with our customers on their level of yield performance improvements or ASP and quarterly agreements are sometimes based on estimates of volume results or ASP for each quarter. Measuring the amount of yield improvement is inherently complicated and dependent on our customers’ internal processes and on certain non-public information that may not be directly available to us. Thus, there may be uncertainty as to some components of measurement or calculation. Also, some variable consideration can be highly susceptible to delays in our customers’ measurement of key factors such as reporting volumes results and level of yield or ASP. Therefore, we may have to estimate revenue related to contingent variable fees or usage- or sales-based royalties prior to the receipt of performance reports, such as royalty acknowledgements, or other related information from customers. These estimates are subject to judgment to evaluate whether it is probable that a significant revenue reversal will not occur in future periods, which could result in our recognition of less Integrated Yield RampVolume-based revenue than expected that may later be offset when actual results become available if such results differ from estimates.

Errors affecting our proprietary hardware and software systems located in customers’ or third-parties’ facilities could lead to liability for us, and any objection from such customers or third-parties or delay in providing us with physical or logical access to such systems may adversely impact our ability to timely perform our contract obligations or lead to confidentiality, integrity, availability, security, or privacy controls exceptions.

From time to time, we give customers delayed payment terms in connection with reaching final agreement on large contracts. When we do this, and if we continue to do it in the future on equal or larger total amounts, our cash is negatively impacted in the short-term. Since we generally do not require collateral or other security for accounts receivable, if customers fail to pay balances when due, in whole or part, we may incur additional expenses attempting to collect and our business relationship and future business with any such customer could suffer as a result of such collection efforts. We may also experience greater difficulty in collecting accounts receivable from non-U.S. customers, resulting in longer collection periods, credit losses, and increased costs to collect. If customers fail to pay at all, in whole or in part, we may have to write-off a portion or all of such receivables or to increase our expense or allowance for credit losses. Our accounts receivable balance, net of allowance for credit losses, was $73.6$82.9 million and $44.9$73.6 million as of December 31, 20242025 and 2023,2024, respectively. Unbilled accounts receivable, included in accounts receivable, totaled $23.0$44.8 million and $16.4$23.0 million as of December 31, 20242025 and 2023,2024, respectively. Unbilled accounts receivable that are not expected to be billed and collected during the succeeding twelve-month period are recorded in other non-current assets and totaled $9.0$8.7 million and $1.1$9.0 million as of December 31, 20242025 and 2023,2024, respectively. FourTwo customers accounted for 64% of our gross accounts receivable as of December 31, 2025, and four customers accounted for 57% of our gross accounts receivable as of December 31, 2024, and two customers accounted for 50% of our gross accounts receivable as of December 31, 2023.2024. The total allowance for credit losses was $0.9 million as of December 31, 20242025 and 2023.2024.

Changes in tax laws, both within the United States and outside of the United States, could change our tax burden and adversely affect our businessbusiness, financial condition and financialresults condition.of operations.

Realization of our deferred tax assets is dependent primarily upon future taxable income in the applicable jurisdiction. We previously recorded a full valuation allowance against all of our U.S. federal and state deferred tax assets due to the uncertainty surrounding the future realization of these deferred tax assets. Therefore, no benefit has been recognized for the net operating loss carryforwards, tax credit carryforwards, and other deferred tax assets. A portion of our net operating loss and tax credits could expire unused and be unavailable to reduce future income tax liabilities. We intend to continue maintaining a full valuation allowance on these deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. We evaluate our deferred tax assets for realizability each reporting period. If we delay or never release such valuation allowance ,allowance, the corresponding benefit would be delayed or lost.

If we do not realize the benefits of our strategic relationships after we have devotedevoted significant time and resources to developing them, it could have an adverse effect on our business and results of operations.

Our success depends on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands, and competitive pressures. To this end, we have, from time to time, engaged in the process of identifying, analyzing, and negotiating possible acquisition transactions, and, from time to time, acquiring one or more businesses, and we expect to continue to do so in the future. We may choose to acquire new and complementary businesses, products, technologies and/or services instead of developing them ourselves. For example, we acquired SecureWise LLC (“SecureWise”) in March 2025 for a gross purchase price of approximately $130 million. We may, however, face competition for acquisition targets from larger or more established companies with greater financial resources, making it more difficult or more expensive for us to complete acquisitions. We may not be successful in completing and closing announced acquisitions, such as our planned acquisition of SecureWise LLC announced in February 2025, or in entering intoconsummating future acquisitions on favorable terms,terms and we may not realize the benefits that we anticipate from one or more acquisitions that we do close. Integrating any business, product, technology, or service into our current operations could be expensive and time-consuming and/or disrupt our ongoing business. Further, there are numerous risks associated with acquisitions and potential acquisitions, including, but not limited to, problems combining the purchased operations, technologies or products, unanticipated costs, liabilities, litigation, and diversion of management’s attention from our core businesses, adverse effects on existing business relationships with suppliers and customers, risks associated with entering markets in which we have no or limited prior experience, and where competitors in such markets have stronger market positions, initial dependence on unfamiliar supply chains or relatively small supply partners, failure of our due diligence processes to identify significant problems, liabilities or other challenges of an acquired company or technology, and the potential loss of key employees, customers, distributors, vendors, and other business partners of the companies we acquire.

Our success and competitiveness depend on our ability to retain, attract, motivate, and strategically locate in our offices around the globe, talented employees, including some of our key executives. Achieving this objective may be difficult due to many factors, including fluctuations in global economic and industry conditions, changes in our management or leadership, the hiring practices at our competitors or customers, cost reduction activities, and the effectiveness of our recruiting and compensation programs, including equity-based programs. The aging semiconductor workforce creates risks as our experienced employees retire and accelerates the loss of critical knowledge. At the same time, educational programs and the needed work experience may not produce the critical talent in time to meet the growing technical demands we require in a workforce. Further, we have had, and expect to continue to have, difficulty in obtaining visas permitting entry for some of our employees that are foreign nationals into the United States, and delays in obtaining visas permitting entry into other key countries, for several of our key personnel, which disrupts our ability to strategically locate our personnel.personnel that exist primarily in foreign locations. In the past the United States has and, in the future, the United States may again increase the level of scrutiny in granting H-1(b), L-1, and other business visas. Compliance with United States immigration and labor laws could require us to incur additional unexpected labor costs and expenses or could restrain our ability to retain skilled professionals. If we lose the services of certain of our key executives or a significant number of our engineers, it could disrupt our ability to implement our business strategy. If we do not successfully attract, retain, and motivate key employees, including key executives, we may be unable to realize our business objectives and our operating results may suffer.

We offer products and services designed to empower organizations across the semiconductor and electronics ecosystems to connect, collect, manage, and analyze data about design, equipment, manufacturing, and test to improve the yield and quality of their products. We derive revenues from two sourcescategories: AnalyticsPlatform and IntegratedVolume-based Yield Ramp.Revenue. Our offerings combine proprietary software, professional services using proven methodologies and third-party cloud-hosting platforms for SaaS, electrical measurement hardware tools, and physical IP for IC designs. We primarily monetize our offerings through license fees and contract fees for professional services and SaaS. In some cases, especially on our historical Integrated Yield Ramp engagements, we also receive a Volume-based fee such as Cimetrix runtime licenses and secureWISE data usage, and a value-based variable fee or royalty, which we call Gainshare. Our products, services, and solutions have been sold to IDMs, fabless semiconductor companies, foundries, OSATs, capital equipment manufacturers and system houses.

Certain trends may affect our Analytics revenue specifically. In particular, theThe confluence of Industry 4.0 (i.e. the fourth industrial revolution, or the automation and data exchange in manufacturing technologies and processes) and cloud computing (i.e. the on-demand availability of computing resources and data storage without direct active management by the user) is driving increased innovation in semiconductor and electronics manufacturing and analytics, as well as in the organization of information technology (“IT”) networks and computing at semiconductor and electronics companies across the ecosystem. First, the ubiquity of wireless connectivity and sensor technology enables any manufacturing company to augment its factories and visualize its entire production line. In parallel, the cost per terabyte of data storage has generally decreased over time. The combination of these two trends means that more data is collected and stored than ever before. Further, semiconductor companies are striving to analyze these very large data sets in real-time to make rapid decisions that measurably improve manufacturing efficiency and quality. In parallel, the traditional practice of on-site data storage, even for highly sensitive data, is changing. The ability to cost-effectively and securely store, analyze, and retrieve massive quantities of data from the cloud versus on-premise enables data to be utilized across a much broader population of users, frequently resulting in greater demands on analytics programs. The combination of these latter two trends means that cloud-based, analytics programs that effectively manage identity management, physical security, and data protection are increasingly in demand for insights and efficiencies across the organizations of these companies. We believe that all these trends will continue for the next few years, and the challenges involved in adopting Industry 4.0 and secure cloud computing will create opportunities for our combination of advanced analytics capabilities, proven and established supporting infrastructure, and professional services to configure our products to meet customers’ specialized needs.

Other trends may continue to affect our Characterization services business and Integrated Yield Ramp revenue specifically. For example, semiconductor manufacturers may experience lower wafer shipments due to weakness in the global economy, which would negatively impact the gainshare component of our Integrated Yield Ramp revenue. The logic foundry market at the leading-edge nodes, such as 7nm, 5nm, and smaller, underwent significant change over the past few years. The leading foundry continues to dominate market share. This trend will likely continue to impact our Characterization services business on these nodes. We expect most logic foundries to invest in derivatives of older process nodes, such as 28nm and 14nm, to extract additional value as many of their customers will not move to advanced nodes due to either technological barriers or restrictive economics. Foundries that participate at leading edge nodes are expected to continue to invest in new technologies such as memory, packaging, and multi-patterned and extreme ultraviolet lithography, as well as new innovations in process control and variability management. We expect China’s investment in semiconductors to continue. Compliance with changing U.S. export restrictions limit our possible business with Chinese semiconductor manufacturers on advanced nodes. AsFurther, atrade resultconflict through exchange of tariffs and other retaliatory actions are expected to impact worldwide supply chains, increase prices and put downward pressure on economic activity, and could negatively affect our future sales in various geographic markets. The uncertainty caused by these regulations and the potential for additional future restrictions could negatively affect our future sales, including in but not limited to the Republic of China (“P.R.C.”) market. Some customers in the P.R.C. have expressed concern about the potential for supply chain disruption due to the U.S. government’s changing export controls impacting their purchase, or in some case restricting their ability to purchase, certain U.S. goods. Based on our current assessments, we expect the near-term impact of these marketevolving developments,trade werestrictions haveon chosenour business to focusbe our resources and investments in products (including differentiated data), services, and solutions for analytics.limited.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Notes 1 and 2 of the Notes to Consolidated Financial Statements (Item 8 of Part II of this Annual Report on Form 10‑K) describe the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. We consider the accounting policies described below to be our critical accounting policies. These critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements and actual results could differ materially from the amounts reported based on these policies.

AnalyticsPlatform Revenue

Revenue from standalonelicenses softwarefor software, other than Cimetrix runtime licenses, is recognized depending on whether the license is perpetual or time-based. Perpetual (one-time charge) license software is recognized at the time of the inception of the arrangement when control transfers to the customers,customers ifas the software license is distinctconsidered as a separate performance obligation from the services offered by us. Revenue from post-contract support is recognized over the contract term on a straight-line basis, because we are providing (i) support and (ii) unspecified software updates on a when-and-if available basis over the contract term. Revenue from time-based-licensed software is allocated to each performance obligation and is recognized either at a point in time or over time as follows. The license component is recognized at the time when control transfers to customers,customers. withRevenue thefrom related software maintenance and technical support services, or post-contract supportsupport, componentis recognized ratably over the committedcontract term ofon thea contract.straight-line Forbasis contractsbecause withwe anygenerally combinationprovide of(i) licenses, support,support and other(ii) services,certain distinctsoftware performanceupdates obligationson area accountedwhen-and-if foravailable separately.basis For contracts with multiple performance obligations, we allocate the transaction price ofover the contract to each performance obligation on a relative basis using the standalone selling price (“SSP”) attributed to each performance obligation.term.

Revenue from SaaS arrangements, which allow for the use of a cloud-based software product or service over a contractually determined period of time without the customer having to taketaking possession of the software, e.g., cloud-based or via a network of secureWISE servers, is accounted for as subscriptionsa subscription and is recognized as revenue ratably, on a straight-line basis, over the subscription period beginning on the date the service is first made available to customers. For contracts with any combination of SaaS and related 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 the SSP attributed to each performance obligation.

WeRevenue alsofrom leasepurchase somecontracts offor DirectScan systems is recognized at a point in time when our DFIperformance systemobligations have been completed, and CVthe systemcustomer assetshas to some customers. We determineaccepted the existenceproduct. ofRevenue from licenses for hardware is recognized depending on whether we classify the contract as an operating or a leasesales-type whenlease. Where the customer controls the use of these identified assets for a period of time defined in thea leasecontract, agreementit andwill classifies such leases as operating leases or sales-type leases. A lease isbe classified as a sales-type lease if it meets certain criteria under FASB Accounting Standards Codification (“ASC”) Topic 842, Leases;Leases, otherwise, it iswill be classified as an operating lease. Operating lease revenue is recognized on a straight-line basis over the lease term. Sales-type lease revenue and corresponding lease receivables are recognized at lease commencement based on the present value of the future lease payments, and related interest income on lease receivable is recognized over the lease term and are recorded under AnalyticsPlatform Revenuerevenue in the Consolidated Statements of Operations and Comprehensive Income (Loss). Payments under sales-type leases are discounted using the interest rate implicit in the lease. When our leases are embedded in contracts with customers that include non-lease performance obligations, we allocate consideration in the contract between lease and non-lease components based on their relative SSPs. Assets subject to operating leases remainare included in Propertyproperty and equipment and continuesubject to be depreciated.depreciation. Assets subject to sales-type leases are derecognized from Propertyproperty and equipmentequipment, net at lease commencement and a net investment in the lease asset is recognized in Prepaidprepaid expenses and other current assets and Otherother non-current assets in the Consolidated Balance Sheets.

We aretypically required to recordrecognize Gainshare revenue in the same period in which the usage occurs. Because we generally do 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, we accrue the related revenue based on estimates of customers underlying sales achievement. Our 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.

We are required to assess whether it is “more likely than not” that we will realize our deferred tax assets (“DTAs”). 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. Based on all available evidence, both positive and negative, we determined a full valuation allowance was still appropriate for our U.S. federal and state net DTAs, primarily driven by a cumulative loss incurred over the 12-quarter period endedDTAs December 31, 2024, and the likelihood that we may not utilize tax attributes before they expire.2025. The valuation allowance was approximately $67.9$69.9 million and $64.2$67.9 million as of December 31, 20242025 and 2023,2024, respectively. We will continue to evaluate the need for a valuation allowance and may change our conclusion in a future period based on changes in facts (e.g., 12-quarter cumulative profit, significant new revenue,revenue etc.and other relevant factors). If we conclude that we are more likely than not to utilize some or all of our U.S. DTAs, we will release some or all of our valuation allowance and our income tax expense will decrease in the period in which we make such determination.

We evaluate our DTAs for realizability considering both positive and 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 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 variances between future projected operating performance and actual results. Changes in the net DTAs, less offsetting valuation allowance, in a period are recorded through the income tax expense and could have a material impact on the Consolidated Statements of Operations and Comprehensive Income (Loss).

Our income tax calculations are based on the application of applicable U.S. federal, state, and/or foreign tax law. Our tax filings, however, are subject to audit by the respective tax authorities. Accordingly, we recognize tax liabilities based upon 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 than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the Consolidated Statements of Operations and Comprehensive Income (Loss). As of December 31, 2024,2025, no deferred taxes have been provided on undistributed earnings from our international subsidiaries. We intend to reinvest the earnings of our non-U.S. subsidiaries in those operations indefinitely. As such, we have not provided for any foreign withholding taxes on the earnings of foreign subsidiaries as of December 31, 2024.2025. The earnings of our 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 Jobs Act.

The fair value of our stock options and purchase rights granted under employee stock purchase plan is estimated using the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life and interest rates. The expected volatility is based on the historical volatility of our common stock over the most recent period commensurate with the estimated expected life of our stock options and purchase rights granted under employee stock purchase plan. The expected life is based on historical experience and on the terms and conditions of the stock options granted and purchase rights granted under employee stock purchase plan. The interest rate assumption is based upon observed Treasury yield curve rates appropriate for the expected life of our stock options and purchase rights granted under employee stock purchase plan.

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values at the date of the business combination. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, estimated replacement costs and future expected cash flows from acquired customers, acquired technology, acquired patents, and trade names from a market participant perspective, useful lives and discount rates. The estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities affects our amortization expense, as acquired finite-lived intangible assets are amortized over their useful life, whereas any indefinite lived intangible assets, including in-process research and development and goodwill, are not amortized.amortized but tested annually for impairment. During the measurement period, which is not to exceed one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings in the Consolidated Statements of Operations and Comprehensive Income (Loss).

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 a qualitative analysis when testing a reporting unit’s goodwill for impairment. 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 impairment of goodwill for the years ended December 31, 2024,2025, 20232024 and 2022.2023.

We have operating leases for our administrative and sales offices, research and development laboratory and clean room. We recognize our long-term operating lease rights and commitments as operating lease right-of-use assets, operating lease liabilitiesassets and operating lease liabilities, non-current, respectively, on our Consolidated Balance Sheets. We elected to not separate lease and non-lease components for all of our leases.

See our Note 1, “Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements included under Part II, Item 8 of this Annual Report on Form 10-K10‑K for a description of recent accounting pronouncements and accounting changes, including the dates of adoption and estimated effects, if any, on our consolidatedConsolidated financialFinancial statements.Statements.

AnalyticsPlatform Revenue

AnalyticsPlatform revenue was $169.3$181.0 million for the year ended December 31, 2024,2025, an increase of $17.2$23.9 million, or 11%,15%, compared to the year ended December 31, 2023.2024. The increase in AnalyticsPlatform revenue was primarily driven by increases in revenue from Exensiofixed fees associated with CV systems and Cimetrixthe softwareaddition licensesof andrevenues DFIrelated to SecureWISE systems, partially offset by a decreasedecreases in revenue from CVperpetual license and DirectScan systems.

Integrated Yield RampVolume-based revenue was $10.2$38.0 million for the year ended December 31, 2024,2025, aan decreaseincrease of $3.5$15.7 million, or 26%,70%, compared to the year ended December 31, 2023,2024. primarilyThe increase in Volume-based revenue was due to a decreaseincreases in hoursrevenue workedfrom onGainshare, fixedsecureWISE feedata engagementsusage, and aCimetrix decreaseruntime in customer wafer shipments at non-leading-edge nodes.license.

The increase in costs of revenues of $2.4$6.5 million for the year ended December 31, 2024,2025, compared to the year ended December 31, 2023,2024, was primarily due to (i) a $1.6$4.0 million increase in hardware-relatedpersonnel-related costs due to increased headcount, worldwide salary increases, increase in employee benefit costs, higher bonus and stock-based compensation expenses, (ii) a $0.9$2.1 million increase in subcontractor fees, (iii) a $0.9$1.6 million increase in software license and maintenance costs, (iv) a $1.3 million increase in amortization of acquired technology, (v) a $1.0 million increase in third-party cloud-delivery costs, (vi) a $0.7 million increase in facilities and IT-related costs, including depreciation and amortization expense, and (ivvii) a $0.2 million increase in personnel-relatedtravel costs mostly due to higher stock-based compensation expenses.expense. These increases were partially offset by a $1.2$4.4 million decrease in facilitieshardware-related and IT-related costs including depreciation and amortization expense.costs.

Gross margin for the year ended December 31, 2024,2025, was 70%72% compared to 69%70% for the year ended December 31, 2023,2024, or an increase of 12 percentage point.points. The higherincrease in gross margin during the year ended December 31, 2024,2025, compared to prior year was primarily duedriven toby higher total revenue compared to the year ended December 31, 2023.revenues.

Research and development expenses increased $2.8by $10.7 million for the year ended December 31, 2024,2025, compared to the year ended December 31, 2023,2024, primarily due to (i) a $1.6$5.4 million increase in personnel-related costs mostly due to higher stock-based compensation expenses, higher other compensation expenses (including employee benefit costs) resulting from increased headcount andheadcount, worldwide salary increases, increased employee benefit costs, higher bonus, and stock-based compensation expense, (ii) a $0.7$2.4 million increase in subcontractor expenses primarily related to CimetrixsecureWISE systems and Exensio software, and (iii) a $0.4$ 2.0 million increase in third-partyfacilities cloud-servicesand relatedIT-related costs.costs, including depreciation and amortization expense, and (iv) a $0.7 million increase in travel expenses.

Selling, general, and administrative expenses consist primarily of personnel-related costs (including compensation, employee benefits, bonus, commission and stock-based compensation expense for sales, marketing, and general and administrative personnel), legal, tax and accounting services, marketing communications and trade conference-related expenses, third-party cloud-services related costs, travel, business acquisition and integration costs, IT and facilities cost allocations.

Interest and Other Expense (Income), Net

Interest income and other expense (income),other, net increasedprimarily $0.6consists of interest income, and foreign currency transaction exchange gains and losses. Interest income and other, net decreased by $4.3 million for the year ended December 31, 2024,2025, compared to the year ended December 31, 2023,2024, primarily due to increase(i) a $4.6 million decrease in interest income from cash, cash equivalents and short-term investments resulting from higher interest ratesinvestments, and sales-type(ii) leases,$1.1 andmillion net favorableunfavorable fluctuations in foreign currency exchange rates, partially offset by a $0.6 million recovery from a loss on damaged equipment in-transit.in-transit in 2025, compared to a write-off of this asset for $0.6 million in 2024.

Income tax expense increased $0.8$1.3 million for the year ended December 31, 2024,2025, compared to the year ended December 31, 2023,2024, primarily due to statethe impact of enacted U.S. federal tax returnlegislation, true-ups that resultedchanges in athe foreign, federal and state taxes, and change in deferred taxes related to indefinite lived deferred tax benefit for the year ended December 31, 2023.liabilities.

The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact may be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “projected,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target” or “continue,” the negative effect of terms like these or other similar expressions. These statements include, but are not limited to, statements related to: the Company’s business strategy and objectives; the Company’s intellectual property and proprietary software, information and technology; the Company’s sales and marketing strategy, expectations regarding strategic alliances and relationships; investments in research and development; industry trends; macroeconomic factors, inventories, and demand; changing export controls and sanctions; U.S. administrative initiatives; investments in semiconductor manufacturing; geopolitical tensions and conflicts; fluctuations in the Company’s quarterly results; and other statements identified by words such as “could,” “expects,” “intends,” “may,” “plans,” “potential,” “should,” “will,” “would,” or similar expressions and the negatives of those terms. These statements are subject to future events, circumstances, uncertainties, and risks that could cause results to differ materially, including risks associated with: the effectiveness of the Company’s business and technology strategies; semiconductor industry trends and competition; rates of adoption of the Company’s solutions by new and existing customers; project milestones or delays and performance criteria achieved; cost and schedule of new product development and investments in research and development; the continuing impact of macroeconomic conditions, including inflation, changing interest rates and tariffs, energy prices, the evolving trade regulatory environment and geopolitical tensions, and other trends impacting the semiconductor industry, the Company’s customers, operations, and supply and demand for its products; supply chain disruptions; changes in laws and regulations, including recent tax and data privacy laws and regulations, or the interpretation or enforcement thereof; the success of the Company’s strategic growth opportunities and partnerships; recent and future acquisitions, strategic alliances and relationships and the Company’s ability to successfully integrate acquired businesses and technologies; whether the Company can successfully convert backlog into revenue; customers’ production volumes under contracts that provide Gainshare; the sufficiency of the Company’s cash resources and anticipated funds from operations; the Company’s ability to obtain additional financing if needed; the Company’s ability to use support and updates for certain open-source software; and other risks and uncertainties discussed in the Company’s filings with the Securities and Exchange Commission (“SEC”). These forward-looking statements are only predictions. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those anticipated or projected. All forward-looking statements and other information included in this document are based on information available to us on the date of filing and we further caution investors that our business and financial performance are subject to substantial risks and uncertainties. We assume no obligation to update publicly any such forward-looking statements. In evaluating these statements, you should specifically consider various factors, including the risk factors set forth in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 24, 2026 (the “Annual Report”). All references to “we,” “us,” “our,” “PDF,” “PDF Solutions” or “the Company” refer to PDF Solutions, Inc.

Worldwide economic performance is uneven, and the possibility of a recession persists, leading to uneven demand. Geopolitical tensions and conflicts in various locations around the world have created volatility in the global financial markets and may have further global economic consequences, including potential disruptions of the global supply chain, heightened volatility of commodity and raw material prices, increased energy prices, and increased fears of a global recession. Inventories of semiconductor devices remain elevated in some instances. With high inventories and soft demand for some product segments, some semiconductor fab utilization rates are also low and semiconductor capital equipment orders have been impacted for some vendors and market segments. As a result, some purchase cycles, especially for enterprise software and capital equipment and particularly with respect to larger deals, have lengthened in recent years and may continue to do so. Also, we have contractors located in the West Bank and in Israel, who are providing software development and customer technical support services. We have developed contingency plans to use alternative resources to continue serving customers, if needed. Any escalations in these areas could lead to disruptions or reductions in international trade, deter or prevent purchasing activity of customers, and negatively impact our development timelines and customer support (with respect to the conflicts in the Middle East) or China sales (with respect to U.S.-P.R.C. tensions) and financial results in general (with respect to global tensions).

Financial highlights for the three months ended MarchJune 31,30, 2026, are as follows:

For additional information about our critical accounting policies, see Note 1, Basis of Presentation and Summary of Significant Accounting Policies, and Note 2, Revenue from Contracts with Customers to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10‑Q and Part II Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation, under the heading of “Critical Accounting Estimates” in our Annual Report. There were no material changes during the threesix months ended MarchJune 31,30, 2026, to the items that we disclosed as our critical accounting policies and estimates in Part II, Item 7 of the Annual Report.

Discussion of Financial Data for the Three and Six Months ended MarchJune 31,30, 2026 and 2025

Platform revenue increased $13.6$5.9 million for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025. The increase in Platform revenue was primarily drivendue byto higher revenue from CV and DirectScan systems, thepartially additionoffset ofby revenues related to SecureWISE systems, and increasedecreases in revenue from CV systems, Exensio software and services.services, and secureWISE systems.

Volume-based revenue decreasedincreased $1.3$3.9 million for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025, primarily due to decreasean increase in revenue from Gainshare,Gainshare partiallyand offsetCimetrix byruntime an increase in secureWISE data usage.licenses.

The increase in costsCosts of revenues ofincreased $4.0$4.2 million for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025, was primarily due to (i) a $1.8$2.8 million increase in personnel-relatedhardware costs due(including tocost increasedof headcountleased andassets higherunder bonussales-type expense,leases), (ii) a $0.9 million increase in facilities and IT-related costs,costs (including depreciation and amortization expense,expense of property and equipment), (iii) a $0.7$0.5 million increase in personnel-related costs due to increased headcount, employee benefits expense, and higher bonus expense, and (iv) a $0.4 million increase in software license and maintenance costs, (iv)partially offset by a $0.3$0.5 million increasedecrease in amortizationsubcontractor of acquired technology, and (v) a $0.2 million increase in travel expense.costs.

Gross margin decreased one percentage point for the three months ended MarchJune 31,30, 2026, decreased two percentage points to 72%69%, compared to 73%71% for the same period in 2025, primarily duedriven by higher costs of revenues compared to decreasethe increase in revenue from Gainshare and higher costs.revenues.

Research and development expenses increased $3.7$2.4 million for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025, primarily due to (i) a $2.5$1.2 million increase in personnel-related costs due to increased headcount, higher bonus expense, and employee benefits expense, partially offset by an increase in capitalized software development costs, (ii) a $0.5 million increase in subcontractor fees primarily related to secureWISE systems and Exensio software, and (iii) a $0.5$0.8 million increase in facilities and IT-related costs,costs (including depreciation and amortization expense.expense of property and equipment), and (iii) a $0.3 million increase in software license and maintenance costs.

Selling, general, and administrative expenses decreased $5.9$0.8 million for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025, primarily due to (i) a $4.3 million decrease in acquisition and integration costs related to the acquisition of SecureWise, (ii) a $1.4$1.2 million decrease in personnel-related costs mainly due to lower compensation expense allocated to selling and marketing activities, and stock-based compensation expense, and (iiiii) a $0.5$0.3 million decrease in facilities and IT-related costs,costs (including depreciation and amortization expense of property and equipment), partially offset by (i) a $0.4 million increase in legal expenses related to the arbitration proceeding over a disputed customer contract, and (ii) a $0.2 million increase in subcontractorsoftware expenses.licenses and maintenance costs.

Amortization of acquired intangible assets represents amortization expense on intangibles assets acquired from business combinations in prior years. The increase in amortization expense for the three months ended March 31, 2026, compared to the same period in 2025, was a result of the amortization of intangible assets acquired in the SecureWise acquisition in March 2025.

Interest expense is from our long-term debt that was used in financing the acquisition of SecureWise in March 2025, and the related amortization of debt discount and issuance costs. Interest expense increased $0.8$0.6 million for the threesix months ended MarchJune 31,30, 2026, compared to the same period in 2025, was driven by a full quartertwo quarters of interest on long-term debt and the amortization of debt discount and issuance costs in the first quarter of 2026, compared to approximately onefour monthmonths of interest in 2025 following the drawdown of long-term debt in March 2025.

Interest income and other, net, primarily consists of interest income and foreign currency transaction exchange gains and losses. Interest income and other, net decreasedincreased $0.3$0.5 million for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025, primarily due to $0.9a $1.1 million decreasenet favorable fluctuations in foreign currency exchange rates, and a $0.2 million increase in interest income from cash and cash equivalents, partially offset by a $0.6 million net favorable fluctuationsdecrease in foreignother currencyincome exchangedue rates.to a one-time recovery from previously written-off property and equipment in the second quarter of 2025.

Income Tax Benefit (Expense)

We had an income tax expense for three and six months ended June 30, 2026 and income tax benefit for comparative prior year periods. Income tax expense increased for the three and six months ended MarchJune 31,30, 2026, compared to the same periodperiods in 2025, primarily due to the impact of enacted U.S. federal tax legislation, changes in the foreign, federal and state taxes and year-to-date recognition of worldwide pre-tax income in relation to their forecasted amounts for the full year.

As of MarchJune 31,30, 2026, our working capital, defined as total current assets less total current liabilities, was $100.7$179.3 million, compared to $92.0 million as of December 31, 2025. Total cash and cash equivalents were $31.2$114.9 million as of MarchJune 31,30, 2026, compared to $42.2 million as of December 31, 2025. As of MarchJune 31,30, 2026, and December 31, 2025, cash and cash equivalents held by our foreign subsidiaries were $8.7$12.3 million and $6.7 million, respectively.

Our material cash requirements include payments for capital expenditures, principal and interest payments on our debt, cash needed to fund our operating activities, operating lease payments, and purchase obligations to support our operations. Additionally, we also use our available cash to pay for employees withholding tax obligations related to net share settlement of equity awards issued under the Company’s equity plan. Refer to Part I, Item 1, Financial Statements, Note 4, Leases, Note 5, Debt, Note 7, Employee Benefit Plans, and Note 12, Commitments and Contingencies for details relating to our material cash requirements for debt, leasing arrangements, including future maturities of operating lease liabilities, debt, taxes related to net share settlement of equity awards, and purchase obligations, respectively. As we continuously grow our DirectScan systems business, we will also continuously invest in our DirectScan systems assets and our capital expenditures for the foreseeable future will be mainly related to the construction of these assets.

The Credit Agreement provides for (a) a revolving credit facility in an aggregate principal amount of $45$45.0 million (the “Revolving Credit Facility”) and (b) a term loan facility in an aggregate principal amount of $25$25.0 million (the “Term Loan” and together with the Revolving Credit Facility, the “Credit Facilities”). The principal of the Revolving Credit Facility is due as a balloon payment of $45.0 million in March 2030. The principal of the Term Loan is due in the amount of $0.6 million quarterly and a balloon payment of $13.1 million in March 2030.

Also, subsequently, inIn May 2026, the Board Directors adopted a new stock repurchase program (the “2026 Program”) to repurchase up to $50.0 million of the Company’s common stock both on the open market and in privately negotiated transactions, including through Rule 10b5-1 plans, from time to time, over the next two years from the adoption date. As of June 30, 2026, $50.0 million remained available under the 2026 Program. See details of our stock repurchase program in Note 6, Stockholders’ Equity to our condensed consolidated financial statements in this Quarterly Report on Form 10‑Q.

Net cash flows provided by operating activities were $1.7$18.1 million for the threesix months ended MarchJune 31,30, 2026, compared to $8.6$3.4 million for the same period in 2025. The decreaseincrease in net cash flows provided by operating activities between the periods was primarily driven by (i) higher disbursementscollections from customers, (ii) the timing of payments under the Company’s bonus and incentive plans between the comparative periods, and (iii) a decrease in payments for operations,business includingacquisition-related payments related to vendor invoicescosts and income taxes, lowerpartially collectionsoffset fromby customers,an andincrease in payments of interest related to bank loans, partially offset by a decrease in bonus payments under the Company’s bonus plan,loans and decrease in paymentsinterest for business acquisition-related costs.income.

For the threesix months ended MarchJune 31,30, 2026, net cash flows used in investing activities were $10.5$24.6 million related to purchases and prepayments of property and equipment, mainly related to our DirectScan systems.systems assets and capitalized software development costs related to the next generation of Exensio Analytics Platform and Sapience Manufacturing Hub.

For the threesix months ended MarchJune 31,30, 2025, net cash flows used in investing activities were $123.9$124.2 million, which were primarily related to $129.7 million payments for the acquisition of SecureWise, net of cash acquired, $2.9 million purchases of short-term investments, and $8.2$16.7 million purchases and prepayments of property and equipment primarily related to our DirectScan systems,systems assets, partially offset by $17.0$21.6 million proceeds from maturities and salessales, net of purchases of short-term investments.investments, and $0.6 million recovery from previously written-off property and equipment.

Net Cash Flows Provided by (Used in) Financing Activities

For the threesix months ended MarchJune 31,30, 2025,2026, net cash flows provided by financing activities were $68.0$79.2 million, which primarily consisted of $69.2$81.8 million proceeds from long-termshares debt,issued under secondary offering, net of debtunderwriting discountdiscounts and issuance costs, that was used in financing the acquisitioncommissions of SecureWise,$3.9 million, and $2.1$2.3 million proceeds from shares issued under our employeeequity stock purchase plan,plans, partially offset by $3.3$4.1 million in cash payments for taxes related to net share settlement of equity awards.awards, and $0.6 million repayment of long-term debt.

Refer to Note 13, Strategic Partnership Agreement with Advantest and Related Party Transactions, to our condensed consolidated financial statements in this Quarterly Report on Form 10‑Q, for the discussion about related party transactions between the Company and Advantest (as defined therein).