UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended: |
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to |
Commission file number:
CEVA, Inc.
(Exact Name of Registrant as Specified in Its Charter)
| |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| |
(Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one).
| ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:
TABLE OF CONTENTS
Page |
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PART I. | ||
Item 1. | Interim Condensed Consolidated Balance Sheets at March 31, 2022 (unaudited) and December 31, 2021 |
6 |
7 | ||
8 | ||
9 | ||
10 | ||
Notes to the Interim Condensed Consolidated Financial Statements |
11 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 3. | 31 | |
Item 4. | 32 | |
PART II. | ||
Item 1. | 32 | |
Item 1A. | 33 | |
Item 2. | 45 | |
Item 3 | 45 | |
Item 4 | 45 | |
Item 5 | 45 | |
Item 6 | 45 | |
46 |
FORWARD-LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements are generally written in the future tense and/or are preceded by words such as “will,” “may,” “should,” “could,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan,” or other similar words. Forward-looking statements include the following:
● |
Our belief that our IP licensing business and chip design expertise are solid with a diverse customer base and myriad target markets; |
● |
Our belief that the adoption of our wireless connectivity and smart sensing IP products beyond our incumbency in the handset baseband market continues to progress, and the concluded agreements for our connectivity and sensing products during the recent period illustrates the industry demand for our diverse IP portfolio; |
● |
Our belief that our PentaG platform for 5G handsets and 5G Broadband IoT endpoints is the most comprehensive baseband processor IP in the industry today and provides newcomers and incumbents with a comprehensive solution to address the need for 5G processing for smartphones, fixed wireless and a range of connected devices such as robots, cars, smart cities and other devices for industrial applications; |
● |
Our belief that our specialization and technological edge in signal processing platforms for 5G RAN put us in a strong position to capitalize on the growing 5G RAN across its new form factors, as well as small cells and private networks; |
● |
Our belief that the growing market for TWS ear buds and smartwatches, and AR and VR headsets and other wearable assisted devices, offers an incremental growth segment for us; |
● |
Our belief that our SensPro™ scalable DSP architecture strengthens our market positions and enables us to expand our content in smartphones, drones, consumer cameras, surveillance, automotive ADAS, voice-enabled devices and industrial IoT applications; |
● |
Our belief that our unique capability to combine our Bluetooth IP, audio DSP IP and software for contextual aware user experience puts us in a strong position to capitalize on the fast-growing True Wireless Stereo (TWS) markets of earbuds, smartwatches, hearing aids, device speakers, PCs, and more; |
● |
Our belief that the market opportunity for Edge AI represents new IP licensing and royalty drivers for the company in the coming years; |
● |
Statements regarding third-party estimates of industry growth and future market conditions, including the expectation that camera-enabled devices incorporating computer vision and AI will exceed 1 billion units and devices incorporating voice AI will reach 600 million units by 2025; |
● |
Our belief that the Hillcrest Labs sensor fusion business unit allows us to address an important technology piece used in personal computers, robotics, TWS earbuds, smart TVs and many other smart sensing IP products; |
● | Our belief that our Bluetooth, Wi-Fi, UWB, cellular IoT and 5G IPs allow us to expand further into IoT applications and substantially increase our value-add and overall addressable market, which is expected to be more than 15 billion devices annually by 2026 based on ABI Research; |
● |
Our beliefs regarding the impact of the Intrinsix acquisition, including it providing new growth vectors, new market reach and a broader revenue base, it allowing us to expand into the lucrative aerospace and defense market, and our ability to offer customers integrated IP solutions that combine the CEVA IP portfolio and Intrinsix’s broad chip design competencies; |
● |
Our expectation that significant growth in royalty revenues will be derived from base station and IoT applications over the next few years, including from a range of different products at different royalty ASPs, spanning from high volume Bluetooth to high value sensor fusion and base station RAN; |
● |
Our efforts with respect to managing demand, supply chain disruptions and shortages; |
● |
Our expectations regarding competition; |
● |
Our expectations with respect to future customers, contracts and revenues, including expectations regarding our customer pipeline, our expectation that a significant portion of our future revenues will continue to be generated by a limited number of customers, and that international customers will continue to account for a significant portion of our revenues for the foreseeable future, that an increasing portion of our new customers and revenues will be derived from China and the remainder of the APAC region and that we will experience another growth year in royalty revenues; |
● |
Our anticipation that our cash and cash equivalents, short-term bank deposits and marketable securities, along with cash from operations, will provide sufficient capital to fund our operations for at least the next 12 months; |
● |
Our belief that changes in interest rates within our investment portfolio will not have a material effect on our financial position on an annual or quarterly basis; and |
● |
Our expectations regarding the impact of COVID-19 and the Russian military action against Ukraine on our business, operations, customers and the economy. |
Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The forward-looking statements contained in this report are based on information that is currently available to us and expectations and assumptions that we deem reasonable at the time the statements were made. We do not undertake any obligation to update any forward-looking statements in this report or in any of our other communications, except as required by law. All such forward-looking statements should be read as of the time the statements were made and with the recognition that these forward-looking statements may not be complete or accurate at a later date.
Many factors may cause actual results to differ materially from those expressed or implied by the forward-looking statements contained in this report. These factors include, but are not limited to, those risks set forth in Part II – Item 1A – “Risk Factors” of this Form 10-Q.
This report contains market data prepared by third party research firm. Actual market results may differ from their projections.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and per share data
March 31, | December 31, | |||||||
| Unaudited | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Short-term bank deposits | ||||||||
Marketable securities | ||||||||
Trade receivables (net of allowance for credit losses of as of March 31, 2022 and December 31, 2021) | ||||||||
Prepaid expenses and other current assets | ||||||||
Total current assets | ||||||||
Long-term assets: | ||||||||
Severance pay fund | ||||||||
Deferred tax assets, net | ||||||||
Property and equipment, net | ||||||||
Operating lease right-of-use assets | ||||||||
Goodwill | ||||||||
Intangible assets, net | ||||||||
Investments in marketable equity securities | ||||||||
Other long-term assets | ||||||||
Total long-term assets | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Trade payables | $ | $ | ||||||
Deferred revenues | ||||||||
Accrued expenses and other payables | ||||||||
Accrued payroll and related benefits | ||||||||
Operating lease liabilities | ||||||||
Total current liabilities | ||||||||
Long-term liabilities: | ||||||||
Accrued severance pay | ||||||||
Operating lease liabilities | ||||||||
Other accrued liabilities | ||||||||
Total long-term liabilities | ||||||||
Stockholders’ equity: | ||||||||
Preferred Stock: | ||||||||
par value: shares authorized; issued and outstanding | ||||||||
Common Stock: | ||||||||
par value: shares authorized; shares issued at March 31, 2022 and December 31, 2021. and shares outstanding at March 31, 2022 and December 31, 2021, respectively | ||||||||
Additional paid in-capital | ||||||||
Treasury stock at cost ( and shares of common stock at March 31, 2022 and December 31, 2021, respectively) | ( | ) | ( | ) | ||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Retained earnings | ||||||||
Total stockholders’ equity | ||||||||
Total liabilities and stockholders’ equity | $ | $ |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF LOSS (UNAUDITED)
U.S. dollars in thousands, except per share data
Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Revenues: | ||||||||
Licensing, NRE and related revenue | $ | $ | ||||||
Royalties | ||||||||
Total revenues | ||||||||
Cost of revenues | ||||||||
Gross profit | ||||||||
Operating expenses: | ||||||||
Research and development, net | ||||||||
Sales and marketing | ||||||||
General and administrative | ||||||||
Amortization of intangible assets | ||||||||
Total operating expenses | ||||||||
Operating income (loss) | ( | ) | ||||||
Financial income, net | ||||||||
Remeasurement of marketable equity securities | ( | ) | ||||||
Loss before taxes on income | ( | ) | ( | ) | ||||
Income tax expense | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Basic net loss per share | $ | ( | ) | $ | ( | ) | ||
Diluted net loss per share | $ | ( | ) | $ | ( | ) | ||
Weighted-average shares used to compute net loss per share (in thousands): | ||||||||
Basic | ||||||||
Diluted |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
U.S. dollars in thousands
Three months ended | ||||||||
March 31, | ||||||||
2022 | 2021 | |||||||
Net loss: | $ | ( | ) | $ | ( | ) | ||
Other comprehensive loss before tax: | ||||||||
Available-for-sale securities: | ||||||||
Changes in unrealized gains (losses) | ( | ) | ( | ) | ||||
Reclassification adjustments for (gains) losses included in net loss | ||||||||
Net change | ( | ) | ( | ) | ||||
Cash flow hedges: | ||||||||
Changes in unrealized gains (losses) | ( | ) | ||||||
Reclassification adjustments for losses included in net loss | ||||||||
Net change | ( | ) | ||||||
Other comprehensive loss before tax | ( | ) | ( | ) | ||||
Income tax benefit related to components of other comprehensive loss | ( | ) | ( | ) | ||||
Other comprehensive loss, net of taxes | ( | ) | ( | ) | ||||
Comprehensive loss | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
U.S. dollars in thousands, except share data
Common stock | Accumulated | |||||||||||||||||||||||||||
Three months ended March 31, 2022 | Number of shares outstanding | Amount | Additional paid-in | Treasury stock | other comprehensive income (loss) | Retained earnings | Total stockholders’ | |||||||||||||||||||||
Balance as of January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
Other comprehensive loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
Equity-based compensation | — | |||||||||||||||||||||||||||
Issuance of treasury stock upon exercise of stock-based awards | ( | ) | ( | ) | ||||||||||||||||||||||||
Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ |
Common stock | Accumulated | |||||||||||||||||||||||||||
Three months ended March 31, 2021 | Number of shares outstanding | Amount | Additional paid-in | Treasury stock | other comprehensive income (loss) | Retained earnings | Total stockholders’ | |||||||||||||||||||||
Balance as of January 1, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
Other comprehensive loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
Equity-based compensation | — | |||||||||||||||||||||||||||
Issuance of treasury stock upon exercise of stock-based awards | ( | ) | ( | ) | ||||||||||||||||||||||||
Balance as of March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | $ |
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
U.S. dollars in thousands
Three months ended | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments required to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation | ||||||||
Amortization of intangible assets | ||||||||
Equity-based compensation | ||||||||
Amortization of premiums on available-for-sale marketable securities | ||||||||
Unrealized foreign exchange loss | ||||||||
Remeasurement of marketable equity securities | ||||||||
Changes in operating assets and liabilities: | ||||||||
Trade receivables | ||||||||
Prepaid expenses and other assets | ( | ) | ( | ) | ||||
Operating lease right-of-use assets | ||||||||
Accrued interest on bank deposits | ( | ) | ||||||
Deferred tax, net | ( | ) | ( | ) | ||||
Trade payables | ( | ) | ||||||
Deferred revenues | ||||||||
Accrued expenses and other payables | ( | ) | ||||||
Accrued payroll and related benefits | ||||||||
Operating lease liability | ( | ) | ( | ) | ||||
Accrued severance pay, net | ( | ) | ||||||
Net cash provided by operating activities | ||||||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | ( | ) | ( | ) | ||||
Proceeds from bank deposits | ||||||||
Investment in available-for-sale marketable securities | ( | ) | ( | ) | ||||
Proceeds from maturity of available-for-sale marketable securities | ||||||||
Proceeds from sale of available-for-sale marketable securities | ||||||||
Net cash provided by (used in) investing activities | ( | ) | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of stock-based awards | ||||||||
Net cash provided by financing activities | ||||||||
Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
Increase in cash and cash equivalents | ||||||||
Cash and cash equivalents at the beginning of the period | ||||||||
Cash and cash equivalents at the end of the period | $ | $ | ||||||
Supplemental information of cash-flow activities: | ||||||||
Cash paid during the period for: | ||||||||
Income and withholding taxes | $ | $ | ||||||
Non-cash transactions: | ||||||||
Property and equipment purchases incurred but unpaid at period end | $ | $ | ||||||
Right-of-use assets obtained in the exchange for operating lease liabilities | $ | $ |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
NOTE 1: BUSINESS
The financial information in this quarterly report includes the results of CEVA, Inc. and its subsidiaries (the “Company” or “CEVA”).
CEVA licenses a family of wireless connectivity and smart sensing technologies and integrated IP solutions. The Company’s offerings include Digital Signal Processors, AI processors, wireless hardware platforms, Security hardware and the related software algorithms including AI for motion sensors, computer vision, voice input and audio, all of which are key enabling technologies for a smarter, more secured and more connected world. These technologies are offered in combination with Intrinsix IP integration services, helping customers address their most complex and time-critical integrated circuit design projects. CEVA’s DSP-based solutions include addresses the technology requirements of the spaces, 5G baseband processing n for mobile, broadband and massive IoT and Radio Access Network (RAN), computer vision for any camera, 4D and LIDAR-enabled device, audio/voice/sound and ultra-low-power always-on/sensing applications for wearables, hearables and multiple IoT markets. For motion sensors and sensor fusion, the Hillcrest Labs sensor processing technologies provide a broad range of n software and inertial measurement unit (“IMU”) solutions for markets including hearables, wearables, AR/VR, PC, robotics, remote controls and IoT. For wireless IoT, the Rivierawaves platforms for Bluetooth (low energy and dual mode), Wi-Fi 4/5/6/6E (802.11n/ac/ax), Ultra-wideband (UWB) are the most broadly licensed connectivity platforms in the industry.
CEVA’s Intrinsix Corp. (“Intrinsix”) business expands its market reach to the aerospace and defense markets and allows it to offer integrated IP solutions that combine CEVA’s standardized, off-the-shelf IP together with Intrinsix’s non-recurring engineering (“NRE”) design capabilities and IP in RF, mixed-signal, security, high complexity digital design, chiplets and more.
CEVA’s technologies are licensed to leading semiconductor and original equipment manufacturer (“OEM”) companies. These companies design, manufacture, market and sell application-specific integrated circuits (“ASICs”) and application-specific standard products (“ASSPs”) based on CEVA’s technology to mobile, consumer, automotive, robotics, industrial, aerospace & defense and IoT companies for incorporation into a wide variety of end products.
NOTE 2: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim condensed consolidated financial statements have been prepared according to U.S Generally Accepted Accounting Principles (“U.S. GAAP”).
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2021, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2022, have been applied consistently in these unaudited interim condensed consolidated financial statements.
Accounting Standards Recently Adopted by the Company
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606). This guidance will be effective for the Company in the first quarter of 2023 on a prospective basis, with early adoption permitted. The Company early adopted the new guidance effective January 1, 2022. The adoption of this standard did not have a significant impact on the Company’s interim condensed consolidated financial statements.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
Use of Estimates
The preparation of the interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The novel coronavirus (“COVID-19”) pandemic has created, and may continue to create, significant uncertainty in macroeconomic conditions, and the extent of its impact on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and the impact on the Company’s customers and its sales cycles. Further, other global events such as the Russian military action against Ukraine could have an impact on the Company’s business. The Company has considered the impact of COVID-19 and other global events on its estimates and assumptions and determined that there were no material adverse impacts on the interim condensed consolidated financial statements for the three months period ended March 31, 2022. As events continue to evolve and additional information becomes available, the Company’s estimates and assumptions may change materially in future periods.
NOTE 3: REVENUE RECOGNITION
Under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”), an entity recognizes revenue when or as it satisfies a performance obligation by transferring intellectual property (“IP”) licenses or services to the customer, either at a point in time or over time. The Company recognizes most of its revenues at a point in time upon delivery when the customer accepts control of the IP. The Company recognizes revenue over time on NRE services or on significant license customization contracts that are in the scope of ASC 606 by using cost inputs to measure progress toward completion of its performance obligations.
The following table includes estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The estimated revenues do not include amounts of royalties or unexercised contract renewals:
Remainder of 2022 | 2023 | 2024 | ||||||||||
Licensing, NRE and related revenues | $ | $ | $ |
Disaggregation of revenue:
The following table provides information about disaggregated revenue by primary geographical market, major product line and timing of revenue recognition:
Three months ended March 31, 2022 (unaudited) | Three months ended March 31, 2021 (unaudited) | |||||||||||||||||||||||
Licensing, NRE and related revenues | Royalties | Total | Licensing, NRE and related revenues | Royalties | Total | |||||||||||||||||||
Primary geographical markets | ||||||||||||||||||||||||
United States | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Europe and Middle East | ||||||||||||||||||||||||
Asia Pacific | ||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Major product/service lines | ||||||||||||||||||||||||
Connectivity products (baseband for handset and other devices, Bluetooth, Wi-Fi, NB-IoT and SATA/SAS) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Smart sensing products (AI, sensor fusion, audio/sound and imaging and vision) | ||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Timing of revenue recognition | ||||||||||||||||||||||||
Products transferred at a point in time | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Products and services transferred over time | — | — | ||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
Contract balances:
The following table provides information about trade receivables, unbilled receivables and contract liabilities from contracts with customers:
March 31, 2022 (unaudited) | December 31, 2021 | |||||||
Trade receivables | $ | $ | ||||||
Unbilled receivables (associated with licensing, NRE and related revenue) | ||||||||
Unbilled receivables (associated with royalties) | ||||||||
Deferred revenues (short-term contract liabilities) |
The Company receives payments from customers based upon contractual payment schedules; trade receivables are recorded when the right to consideration becomes unconditional, and an invoice is issued to the customer. Unbilled receivables associated with licensing, NRE and other include amounts related to the Company’s contractual right to consideration for completed performance objectives not yet invoiced. Unbilled receivables associated with royalties are recorded as the Company recognizes revenues from royalties earned during the quarter, but not yet invoiced, either by actual sales data received from customers, or, when applicable, by the Company’s estimation. Contract liabilities (deferred revenue) include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract.
During the three months ended March 31, 2022, the Company recognized $
NOTE 4: LEASES
The Company leases substantially all of its office space and vehicles under operating leases. The Company's leases have original lease periods expiring between 2023 and 2034. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably certain. Lease payments included in the measurement of the lease liability comprise the following: the fixed non-cancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.
The following is a summary of weighted average remaining lease terms and discount rates for all of the Company’s operating leases:
March, 2022 (Unaudited) | ||||
Weighted average remaining lease term (years) | ||||
Weighted average discount rates | % |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
Total operating lease cost and cash payments for operating leases were as follows:
Three months ended | ||||||||
2022 (unaudited) | 2021 (unaudited) | |||||||
Operating lease cost | $ | $ | ||||||
Cash payments for operating leases |
Maturities of lease liabilities are as follows:
The remainder of 2022 | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
2027 and thereafter | ||||
Total undiscounted cash flows | ||||
Less imputed interest | ||||
Present value of lease liabilities | $ |
NOTE 5: MARKETABLE SECURITIES
The following is a summary of available-for-sale marketable securities:
March 31, 2022 (Unaudited) | ||||||||||||||||
Amortized | Gross | Gross | Fair | |||||||||||||
Available-for-sale - matures within one year: | ||||||||||||||||
Corporate bonds | $ | $ | $ | ( | ) | $ | ||||||||||
Available-for-sale - matures after one year through five years: | ||||||||||||||||
Corporate bonds | ( | ) | ||||||||||||||
Total | $ | $ | $ | ( | ) | $ |
December 31, 2021 | ||||||||||||||||
Amortized | Gross | Gross | Fair | |||||||||||||
Available-for-sale - matures within one year: | ||||||||||||||||
Corporate bonds | $ | $ | $ | ( | ) | $ | ||||||||||
Available-for-sale - matures after one year through five years: | ||||||||||||||||
Corporate bonds | ( | ) | ||||||||||||||
Total | $ | $ | $ | ( | ) | $ |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of March 31, 2022 and December 31, 2021, and the length of time that those investments have been in a continuous loss position:
Less than 12 months | 12 months or greater | |||||||||||||||
Fair value | Gross unrealized loss | Fair value | Gross unrealized loss | |||||||||||||
As of March 31, 2022 (unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
As of December 31, 2021 | $ | $ | ( | ) | $ | $ | ( | ) |
As of March 31, 2022, the allowance for credit losses was not material.
There were
NOTE 6: FAIR VALUE MEASUREMENT
FASB ASC No. 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value. Fair value is an exit price, representing the amount that would be received for selling an asset or paid for the transfer of a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
Level I | Unadjusted quoted prices in active markets that are accessible on the measurement date for identical, unrestricted assets or liabilities; | |
Level II | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and | |
Level III | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
The Company measures its marketable securities, investment in marketable equity securities and foreign currency derivative contracts at fair value. The carrying amount of the cash and cash equivalents, short-term bank deposits, trade receivables, prepaid expenses and other current assets, trade payables, accrued expenses and other accounts payables and accrued payroll and related benefits approximate their fair value due to the short-term maturity of such instruments. Investment in marketable equity securities are classified within Level I as the securities are traded in an active market. Marketable securities and foreign currency derivative contracts are classified within Level II as the valuation inputs are based on quoted prices and market observable data of similar instruments.
The table below sets forth the Company’s assets measured at fair value by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
March 31, 2022 | Level I | Level II | Level III | |||||||||||||
Description | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||
Assets: | ||||||||||||||||
Marketable securities: | ||||||||||||||||
Corporate bonds | $ | $ | $ | $ | ||||||||||||
Foreign exchange contract | ||||||||||||||||
Investments in marketable equity securities | ||||||||||||||||
Liabilities: | ||||||||||||||||
Foreign exchange contract |
Description | December 31, 2021 | Level I | Level II | Level III | ||||||||||||
Assets: | ||||||||||||||||
Marketable securities: | ||||||||||||||||
Corporate bonds | $ | $ | ||||||||||||||
Foreign exchange contract | ||||||||||||||||
Investments in marketable equity securities |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
NOTE 7: INTANGIBLE ASSETS, NET
Three months ended March 31, 2022 (unaudited) | Year ended December 31, 2021
| |||||||||||||||||||||||||||
Weighted average amortization period (years) | Gross carrying amount | Accumulated amortization | Net | Gross carrying amount | Accumulated amortization | Net | ||||||||||||||||||||||
Intangible assets –amortizable: | ||||||||||||||||||||||||||||
Intangible assets related to the acquisition of Intrinsix | ||||||||||||||||||||||||||||
Customer relationships | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Customer backlog | ||||||||||||||||||||||||||||
Patents | ||||||||||||||||||||||||||||
Core technologies | ||||||||||||||||||||||||||||
Intangible assets related to the acquisition of Hillcrest Labs business | ||||||||||||||||||||||||||||
Customer relationships | ||||||||||||||||||||||||||||
Customer backlog | ||||||||||||||||||||||||||||
R&D Tools | ||||||||||||||||||||||||||||
Intangible assets related to an investment in Immervision | ||||||||||||||||||||||||||||
R&D Tools | ||||||||||||||||||||||||||||
Intangible assets related to an investment in NB-IoT technologies | ||||||||||||||||||||||||||||
NB-IoT technologies (*) | ||||||||||||||||||||||||||||
Total intangible assets | $ | $ | $ | $ | $ | $ |
(*)During the first quarter of 2018, the Company entered into an agreement to acquire certain NB-IoT technologies in the amount of $ |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
Future estimated annual amortization charges are as follows:
2022 | ||||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
2027 and thereafter | ||||
$ |
NOTE 8: GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA
a. | Summary information about geographic areas: |
The Company manages its business on the basis of
Three months ended | ||||||||
2022 (unaudited) | 2021 (unaudited) | |||||||
Revenues based on customer location: | ||||||||
United States | $ | $ | ||||||
Europe and Middle East | ||||||||
Asia Pacific (1) | ||||||||
$ | $ | |||||||
(1) China | $ | $ |
b. | Major customer data as a percentage of total revenues: |
The following table sets forth the customers that represented 10% or more of the Company’s total revenues in each of the periods set forth below.
Three months ended | ||||||||
2022 (unaudited) | 2021 (unaudited) | |||||||
Customer A | % | % | ||||||
Customer B | % | *) | ||||||
Customer C | *) | % | ||||||
Customer D | *) | % |
*) Less than 10% |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
NOTE 9: NET LOSS PER SHARE OF COMMON STOCK
Basic net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding during each period. Diluted net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding during each period, plus dilutive potential shares of common stock considered outstanding during the period, in accordance with FASB ASC No. 260, “Earnings Per Share.”
Three months ended | ||||||||
2022 (unaudited) | 2021 (unaudited) | |||||||
Numerator: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Denominator (in thousands): | ||||||||
Basic weighted-average common stock outstanding | ||||||||
Effect of stock -based awards | ||||||||
Diluted weighted average common stock outstanding | ||||||||
Basic net loss per share | $ | ( | ) | $ | ( | ) | ||
Diluted net loss per share | $ | ( | ) | $ | ( | ) |
The total number of potential shares excluded from the calculation of diluted net loss per share due to their antidilutive effect was
NOTE 10: COMMON STOCK AND STOCK-BASED COMPENSATION PLANS
The Company grants a mix of stock options, stock appreciation rights (“SARs”) capped with a ceiling and restricted stock units (“RSUs”) to employees and non‑employee directors of the Company and its subsidiaries under the Company’s equity plans and provides the right to purchase common stock pursuant to the Company’s 2002 employee stock purchase plan to employees of the Company and its subsidiaries.
The SAR unit confers the holder the right to stock appreciation over a preset price of the Company’s common stock during a specified period of time. When the unit is exercised, the appreciation amount is paid through the issuance of shares of the Company’s common stock. The ceiling limits the maximum income for each SAR unit. SARs are considered an equity instrument as it is a net share settled award capped with a ceiling (
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
A summary of the Company’s stock option and SAR activities and related information for the three months ended March 31, 2022, are as follows:
Number of and SAR units (1) | Weighted exercise | Weighted remaining term | Aggregate value | |||||||||||||
Outstanding as of December 31, 2021 | $ | $ | ||||||||||||||
Granted | — | |||||||||||||||
Exercised | ( | ) | ||||||||||||||
Forfeited or expired | — | |||||||||||||||
Outstanding as of March 31, 2022 (2) | $ | $ | ||||||||||||||
Exercisable as of March 31, 2022 (3) | $ | $ |
(1) | The SAR units are convertible for a maximum number of shares of the Company’s common stock equal to |
(2) | Due to the ceiling imposed on the SAR grants, the outstanding amount equals a maximum of |
(3) | Due to the ceiling imposed on the SAR grants, the exercisable amount equals a maximum of |
As of March 31, 2022, there were
An RSU award is an agreement to issue shares of the Company’s common stock at the time the award or a portion thereof vests. RSUs granted to employees generally vest in
equal annual installments starting on the first anniversary of the grant date. Until the end of 2017, RSUs granted to non-employee directors would generally vest in full on the anniversary of the grant date. Starting in 2018, RSUs granted to non-employee directors would generally vest in equal annual installments starting on the first anniversary of the grant date.
On February 14, 2022, the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company granted
Also, on February 14, 2022, the Committee granted
Weighting | Goals |
| Vesting of the full |
| Vesting of the full |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
Additionally, PSUs representing an additional
Subject to achievement of the thresholds the above performance goals for 2022 and continuing employment, the Short-Term Executive PSUs vest
A summary of the Company’s RSU and PSU activities and related information for the three months ended March 31, 2022, are as follows:
Number of PSUs | Weighted Average Grant-Date | |||||||
Unvested as of December 31, 2021 | $ | |||||||
Granted | ||||||||
Vested | ( | ) | ||||||
Forfeited or expired | ( | ) | ||||||
Unvested as of March 31, 2022 (unaudited) | $ |
As of March 31, 2022, there was $
The following table shows the total equity-based compensation expense included in the interim condensed consolidated statements of income (loss):
Three months ended | ||||||||
2022 (unaudited) | 2021 (unaudited) | |||||||
Cost of revenue | $ | $ | ||||||
Research and development, net | ||||||||
Sales and marketing | ||||||||
General and administrative | ||||||||
Total equity-based compensation expense | $ | $ |
The fair value for rights to purchase shares of common stock under the Company’s employee stock purchase plan was estimated on the date of grant using the following assumptions:
Three months ended | |||||||||
2022 (unaudited) | 2021 (unaudited) | ||||||||
Expected dividend yield | % | % | |||||||
Expected volatility | % | - | % | ||||||
Risk-free interest rate | % | - | % | ||||||
Contractual term of up to (months) |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
NOTE 11: DERIVATIVES AND HEDGING ACTIVITIES
The Company follows the requirements of FASB ASC No. 815,” Derivatives and Hedging” which requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging transaction and further, on the type of hedging transaction. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. Due to the Company’s global operations, it is exposed to foreign currency exchange rate fluctuations in the normal course of its business. The Company’s treasury policy allows it to offset the risks associated with the effects of certain foreign currency exposures through the purchase of foreign exchange forward or option contracts (“Hedging Contracts”). The policy, however, prohibits the Company from speculating on such Hedging Contracts for profit. To protect against the increase in value of forecasted foreign currency cash flow resulting from salaries paid in currencies other than the U.S. dollar during the year, the Company instituted a foreign currency cash flow hedging program. The Company hedges portions of the anticipated payroll of its non-U.S. employees denominated in the currencies other than the U.S. dollar for a period of one to twelve months with Hedging Contracts. Accordingly, when the dollar strengthens against the foreign currencies, the decline in present value of future foreign currency expenses is offset by losses in the fair value of the Hedging Contracts. Conversely, when the dollar weakens, the increase in the present value of future foreign currency expenses is offset by gains in the fair value of the Hedging Contracts. These Hedging Contracts are designated as cash flow hedges.
For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. As of March 31, 2022, and December 31, 2021, the notional principal amount of the Hedging Contracts to sell U.S. dollars held by the Company was $
The fair value of the Company’s outstanding derivative instruments is as follows:
March 31, 2022 (unaudited) | December 31, 2021 | |||||||
Derivative assets: | ||||||||
Derivatives designated as cash flow hedging instruments: | ||||||||
Foreign exchange forward contracts | $ | $ | ||||||
Total | $ | $ | ||||||
Derivative liabilities: | ||||||||
Derivatives designated as cash flow hedging instruments: | ||||||||
Foreign exchange forward contracts | $ | $ | ||||||
Total | $ | $ |
The increase (decrease) in unrealized gains (losses) recognized in “accumulated other comprehensive gain (loss)” on derivatives, before tax effect, is as follows:
Three months ended | ||||||||
2022 (unaudited) | 2021 (unaudited) | |||||||
Derivatives designated as cash flow hedging instruments: | ||||||||
Foreign exchange option contracts | $ | $ | ( | ) | ||||
Foreign exchange forward contracts | ( | ) | ||||||
$ | $ | ( | ) |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
The net (gains) losses reclassified from “accumulated other comprehensive gain (loss)” into income are as follows:
Three months ended | ||||||||
2022 (unaudited) | 2021 (unaudited) | |||||||
Derivatives designated as cash flow hedging instruments: | ||||||||
Foreign exchange option contracts | $ | $ | ||||||
Foreign exchange forward contracts | ||||||||
$ | $ |
The Company recorded in cost of revenues and operating expenses a net loss of $
NOTE 12: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following tables summarize the changes in accumulated balances of other comprehensive income (loss), net of taxes:
Three months ended March 31, 2022 (unaudited) | Three months ended March 31, 2021 (unaudited) | |||||||||||||||||||||||
Unrealized gains (losses) on available-for- sale marketable securities | Unrealized gains (losses) on cash flow hedges | Total | Unrealized gains (losses) on available-for- sale marketable securities | Unrealized gains (losses) on cash flow hedges | Total | |||||||||||||||||||
Beginning balance | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||
Other comprehensive income (loss) before reclassifications | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | ||||||||||||||||||||||||
Net current period other comprehensive income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
Ending balance | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(in thousands, except share data)
The following table provides details about reclassifications out of accumulated other comprehensive income (loss):
Details about Accumulated Other Comprehensive Income (Loss) Components | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | Affected Line Item in the Statements of Income (Loss) | |||||||
Three months ended March 31, | |||||||||
2022 | 2021 | ||||||||
Unrealized gains (losses) on cash flow hedges | $ | ( | ) | $ | Cost of revenues | ||||
( | ) | ( | ) | Research and development | |||||
( | ) | ( | ) | Sales and marketing | |||||
( | ) | ( | ) | General and administrative | |||||
( | ) |