CEVA INC [CEVA] Filings

10-Q 1 ceva20220331_10q.htm FORM 10-Q ceva20220331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: March 31, 2022

☐	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: 000-49842

CEVA, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	77-0556376
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

15245 Shady Grove Road, Suite 400, Rockville, MD 20850	20850
(Address of Principal Executive Offices)	(Zip Code)

(240)-308-8328

(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
Common Stock, $.001 per share	CEVA	The NASDAQ Stock Market LLC

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.

Yes ☒ No ☐

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).

Yes ☒ No ☐

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).

Large accelerated filer	☒	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 ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 23,206,605 of common stock, $0.001 par value, as of May 4, 2022.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Interim Condensed Consolidated Balance Sheets at March 31, 2022 (unaudited) and December 31, 2021	6
	Interim Condensed Consolidated Statements of Loss (unaudited) for the three months ended March 31, 2022 and 2021	7
	Interim Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three months ended March 31, 2022 and 2021	8
	Interim Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2022 and 2021	9
	Interim Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2022 and 2021	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.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	32
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3	Defaults Upon Senior Securities	45
Item 4	Mine Safety Disclosures	45
Item 5	Other Information	45
Item 6	Exhibits	45
SIGNATURES		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.

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands, except share and per share data

	March 31, 2022			December 31, 2021
	Unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	39,778		$	33,153
Short-term bank deposits		29,972			31,410
Marketable securities		92,625			90,298
Trade receivables (net of allowance for credit losses of $288 as of March 31, 2022 and December 31, 2021)		23,508			27,449
Prepaid expenses and other current assets		11,421			6,670
Total current assets		197,304			188,980
Long-term assets:
Severance pay fund		10,011			10,175
Deferred tax assets, net		17,502			15,850
Property and equipment, net		7,842			6,765
Operating lease right-of-use assets		8,402			8,827
Goodwill		74,777			74,777
Intangible assets, net		13,440			14,607
Investments in marketable equity securities		1,788			2,919
Other long-term assets		3,974			5,759
Total long-term assets		137,736			139,679
Total assets	$	335,040		$	328,659

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade payables	$	3,176		$	1,464
Deferred revenues		8,731			8,661
Accrued expenses and other payables		4,127			4,030
Accrued payroll and related benefits		21,604			18,011
Operating lease liabilities		3,149			3,274
Total current liabilities		40,787			35,440
Long-term liabilities:
Accrued severance pay		10,666			10,551
Operating lease liabilities		4,707			5,130
Other accrued liabilities		801			806
Total long-term liabilities		16,174			16,487
Stockholders’ equity:
Preferred Stock:
$0.001 par value: 5,000,000 shares authorized; none issued and outstanding		—			—
Common Stock:
$0.001 par value: 45,000,000 shares authorized; 23,595,160 shares issued at March 31, 2022 and December 31, 2021. 23,204,274 and 22,984,552 shares outstanding at March 31, 2022 and December 31, 2021, respectively		23			23
Additional paid in-capital		235,563			235,386
Treasury stock at cost (390,886 and 610,608 shares of common stock at March 31, 2022 and December 31, 2021, respectively)		(8,828	)		(13,790	)
Accumulated other comprehensive loss		(2,438	)		(372	)
Retained earnings		53,759			55,485
Total stockholders’ equity		278,079			276,732
Total liabilities and stockholders’ equity	$	335,040		$	328,659

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	$	22,393		$	14,397
Royalties		11,998			11,005
Total revenues		34,391			25,402
Cost of revenues		6,404			2,381
Gross profit		27,987			23,021
Operating expenses:
Research and development, net		20,210			17,593
Sales and marketing		2,923			3,302
General and administrative		3,636			2,880
Amortization of intangible assets		750			576
Total operating expenses		27,519			24,351
Operating income (loss)		468			(1,330	)
Financial income, net		282			36
Remeasurement of marketable equity securities		(1,131	)		—
Loss before taxes on income		(381	)		(1,294	)
Income tax expense		1,315			2,336
Net loss	$	(1,696	)	$	(3,630	)

Basic net loss per share	$	(0.07	)	$	(0.16	)
Diluted net loss per share	$	(0.07	)	$	(0.16	)

Weighted-average shares used to compute net loss per share (in thousands):
Basic		23,103			22,546
Diluted		23,103			22,546

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:	$	(1,696	)	$	(3,630	)
Other comprehensive loss before tax:
Available-for-sale securities:
Changes in unrealized gains (losses)		(2,839	)		(457	)
Reclassification adjustments for (gains) losses included in net loss		—			—
Net change		(2,839	)		(457	)
Cash flow hedges:
Changes in unrealized gains (losses)		2			(50	)
Reclassification adjustments for losses included in net loss		110			22
Net change		112			(28	)
Other comprehensive loss before tax		(2,727	)		(485	)
Income tax benefit related to components of other comprehensive loss		(661	)		(100	)
Other comprehensive loss, net of taxes		(2,066	)		(385	)
Comprehensive loss	$	(3,762	)	$	(4,015	)

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 capital			Treasury stock			other comprehensive income (loss)			Retained earnings			Total stockholders’ equity
Balance as of January 1, 2022		22,984,552	$	23	$	235,386		$	(13,790	)	$	(372	)	$	55,485		$	276,732
Net loss		—		—		—			—			—			(1,696	)		(1,696	)
Other comprehensive loss		—		—		—			—			(2,066	)		—			(2,066	)
Equity-based compensation		—		—		3,389			—			—			—			3,389
Issuance of treasury stock upon exercise of stock-based awards		219,722		—		(3,212	)		4,962			—			(30	)		1,720
Balance as of March 31, 2022		23,204,274	$	23	$	235,563		$	(8,828	)	$	(2,438	)	$	53,759		$	278,079

	Common stock										Accumulated
Three months ended March 31, 2021	Number of shares outstanding		Amount		Additional paid-in capital			Treasury stock			other comprehensive income (loss)			Retained earnings			Total stockholders’ equity
Balance as of January 1, 2021		22,260,917	$	22	$	233,172		$	(30,133	)	$	478		$	57,350		$	260,889
Net loss		—		—		—			—			—			(3,630	)		(3,630	)
Other comprehensive loss		—		—		—			—			(385	)		—			(385	)
Equity-based compensation		—		—		3,198			—			—			—			3,198
Issuance of treasury stock upon exercise of stock-based awards		550,173		1		(8,699	)		12,425			—			(2,150	)		1,577
Balance as of March 31, 2021		22,811,090	$	23	$	227,671		$	(17,708	)	$	93		$	51,570		$	261,649

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 March 31,
	2022			2021
Cash flows from operating activities:
Net loss	$	(1,696	)	$	(3,630	)
Adjustments required to reconcile net loss to net cash provided by operating activities:
Depreciation		780			821
Amortization of intangible assets		1,167			646
Equity-based compensation		3,389			3,198
Amortization of premiums on available-for-sale marketable securities		123			127
Unrealized foreign exchange loss		154			391
Remeasurement of marketable equity securities		1,131			—
Changes in operating assets and liabilities:
Trade receivables		3,944			6,583
Prepaid expenses and other assets		(3,034	)		(1,288	)
Operating lease right-of-use assets		425			698
Accrued interest on bank deposits		(9	)		156
Deferred tax, net		(991	)		(1,005	)
Trade payables		736			(74	)
Deferred revenues		70			960
Accrued expenses and other payables		92			(464	)
Accrued payroll and related benefits		3,710			8,854
Operating lease liability		(454	)		(711	)
Accrued severance pay, net		287			(69	)
Net cash provided by operating activities		9,824			15,193

Cash flows from investing activities:
Purchase of property and equipment		(909	)		(1,057	)
Proceeds from bank deposits		1,385			12,989
Investment in available-for-sale marketable securities		(8,789	)		(6,752	)
Proceeds from maturity of available-for-sale marketable securities		3,500			9,063
Proceeds from sale of available-for-sale marketable securities		—			1,975
Net cash provided by (used in) investing activities		(4,813	)		16,218

Cash flows from financing activities:
Proceeds from exercise of stock-based awards		1,720			1,577
Net cash provided by financing activities		1,720			1,577
Effect of exchange rate changes on cash and cash equivalents		(106	)		(469	)
Increase in cash and cash equivalents		6,625			32,519
Cash and cash equivalents at the beginning of the period		33,153			21,143
Cash and cash equivalents at the end of the period	$	39,778		$	53,662

Supplemental information of cash-flow activities:
Cash paid during the period for:
Income and withholding taxes	$	2,355		$	2,192
Non-cash transactions:
Property and equipment purchases incurred but unpaid at period end	$	948		$	7
Right-of-use assets obtained in the exchange for operating lease liabilities	$	308		$	—

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		$	20,864			$	3,978			$	298

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	$	4,475	$	2,271	$	6,746	$	572	$	3,378	$	3,950
Europe and Middle East		437		665		1,102		423		676		1,099
Asia Pacific		17,481		9,062		26,543		13,402		6,951		20,353
Total	$	22,393	$	11,998	$	34,391	$	14,397	$	11,005	$	25,402

Major product/service lines
Connectivity products (baseband for handset and other devices, Bluetooth, Wi-Fi, NB-IoT and SATA/SAS)	$	16,815	$	9,062	$	25,877	$	12,805	$	8,105	$	20,910
Smart sensing products (AI, sensor fusion, audio/sound and imaging and vision)		5,578		2,936		8,514		1,592		2,900		4,492
Total	$	22,393	$	11,998	$	34,391	$	14,397	$	11,005	$	25,402

Timing of revenue recognition
Products transferred at a point in time	$	15,932	$	11,998	$	27,930	$	11,988	$	11,005	$	22,993
Products and services transferred over time		6,461		—		6,461		2,409		—		2,409
Total	$	22,393	$	11,998	$	34,391	$	14,397	$	11,005	$	25,402

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	$	12,063	$	14,644
Unbilled receivables (associated with licensing, NRE and related revenue)		2,174		1,833
Unbilled receivables (associated with royalties)		9,271		10,972
Deferred revenues (short-term contract liabilities)		8,731		8,661

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 $3,820, that was included in deferred revenues (short-term contract liability) balance at January 1, 2022.

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)		4.97
Weighted average discount rates		1.96	%

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 March 31,
	2022 (unaudited)		2021 (unaudited)

Operating lease cost	$	800	$	741
Cash payments for operating leases		830		799

Maturities of lease liabilities are as follows:

The remainder of 2022	$	2,742
2023		1,562
2024		801
2025		808
2026		752
2027 and thereafter		1,594
Total undiscounted cash flows		8,259
Less imputed interest		403
Present value of lease liabilities	$	7,856

NOTE 5: MARKETABLE SECURITIES

The following is a summary of available-for-sale marketable securities:

	March 31, 2022 (Unaudited)
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale - matures within one year:
Corporate bonds	$	11,089	$	6	$	(7	)	$	11,088

Available-for-sale - matures after one year through five years:
Corporate bonds		84,934		15		(3,412	)		81,537
Total	$	96,023	$	21	$	(3,419	)	$	92,625

	December 31, 2021
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale - matures within one year:
Corporate bonds	$	11,937	$	39	$	(7	)	$	11,969

Available-for-sale - matures after one year through five years:
Corporate bonds		78,920		227		(818	)		78,329

Total	$	90,857	$	266	$	(825	)	$	90,298

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)	$	65,075	$	(2,457	)	$	16,913	$	(962	)
As of December 31, 2021	$	53,412	$	(667	)	$	12,039	$	(158	)

As of March 31, 2022, the allowance for credit losses was not material.

There were no gross realized gains and losses from sale of available-for-sale marketable securities during both the three months ended March 31, 2022 and 2021 (unaudited).

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	$	92,625	$	—	$	92,625	$	—
Foreign exchange contract		186		—		186		—
Investments in marketable equity securities		1,788		1,788		—		—

Liabilities:
Foreign exchange contract		11		—		11		—

Description	*December 31, 2021*		*Level I*		*Level II*		*Level III*
Assets:
Marketable securities:
Corporate bonds	$	90,298		—	$	90,298		—
Foreign exchange contract		63		—		63		—
Investments in marketable equity securities		2,919		2,919		—		—

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		5.5	$	3,604	$	546	$	3,058	$	3,604	$	382	$	3,222
Customer backlog		1.5		421		234		187		421		164		257
Patents		5.0		218		36		182		218		26		192
Core technologies		3.0		3,329		924		2,405		3,329		647		2,682

Intangible assets related to the acquisition of Hillcrest Labs business
Customer relationships		4.4		3,518		2,347		1,171		3,518		2,130		1,388
Customer backlog		0.5		72		72		—		72		72		—
R&D Tools		7.5		2,475		893		1,582		2,475		810		1,665

Intangible assets related to an investment in Immervision
R&D Tools		6.4		7,063		2,955		4,108		7,063		2,679		4,384

Intangible assets related to an investment in NB-IoT technologies
NB-IoT technologies (*)		7.0		1,961		1,214		747		1,961		1,144		817

Total intangible assets			$	22,661	$	9,221	$	13,440	$	22,661	$	8,054	$	14,607

(*)During the first quarter of 2018, the Company entered into an agreement to acquire certain NB-IoT technologies in the amount of $2,800, of which technologies valued at $600 has not been received. Of the $2,200, $210 has not resulted in cash outflows as of March 31, 2022. In addition, the Company participated in programs sponsored by the Hong Kong government for the support of the above investment, and as a result, the Company received during 2019 an amount of $239 related to the NB-IoT technologies, which was reduced from the gross carrying amount of intangible assets. The Company recorded the amortization cost of the NB-IoT technologies in “cost of revenues” on the Company’s interim condensed consolidated statements of income (loss).

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(in thousands, except share data)

Future estimated annual amortization charges are as follows:

2022		3,480
2023		3,714
2024		3,013
2025		2,262
2026		956
2027 and thereafter		15
	$	13,440

NOTE 8: GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA

Summary information about geographic areas:

The Company manages its business on the basis of one reportable segment: the licensing of intellectual property and integrated IP solutions to semiconductor companies and electronic equipment manufacturers (see Note 1 for a brief description of the Company’s business). The following is a summary of revenues within geographic areas:

	Three months ended March 31,
	2022 (unaudited)		2021 (unaudited)
Revenues based on customer location:
United States	$	6,746	$	3,950
Europe and Middle East		1,102		1,099
Asia Pacific (1)		26,543		20,353
	$	34,391	$	25,402

(1) China	$	22,971	$	17,259

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 March 31,
	2022 (unaudited)			2021 (unaudited)

Customer A		12	%		14	%
Customer B		11	%		*)
Customer C		*)			23	%
Customer D		*)			12	%

*) 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 March 31,
	2022 (unaudited)			2021 (unaudited)
Numerator:
Net loss	$	(1,696	)	$	(3,630	)

Denominator (in thousands):
Basic weighted-average common stock outstanding		23,103			22,546
Effect of stock -based awards		—			—
Diluted weighted average common stock outstanding		23,103			22,546

Basic net loss per share	$	(0.07	)	$	(0.16	)
Diluted net loss per share	$	(0.07	)	$	(0.16	)

The total number of potential shares excluded from the calculation of diluted net loss per share due to their antidilutive effect was 853,258 and 625,044 for the three months ended March 31, 2022 and 2021, respectively.

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 (400% for all SAR grants made in years prior to 2016, when the Company ceased to grant SAR units). The options and SARs granted under the Company’s stock incentive plans have been granted at the fair market value of the Company’s common stock on the grant date. Options and SARs granted to employees under stock incentive plans vest at a rate of 25% of the shares underlying the option after one year and the remaining shares vest in equal portions over the following 36 months, such that all shares are vested after four years. Options granted to non‑employee directors vest 25% of the shares underlying the option on each anniversary of the option grant.

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 options and SAR units (1)			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic value
Outstanding as of December 31, 2021		126,000		$	20.06		2.6	$	2,921
Granted		—			—
Exercised		(4,000	)		19.59
Forfeited or expired		—			—
Outstanding as of March 31, 2022 (2)		122,000		$	20.07		2.4	$	2,510
Exercisable as of March 31, 2022 (3)		122,000		$	20.07		2.4	$	2,510

(1)

The SAR units are convertible for a maximum number of shares of the Company’s common stock equal to 75% of the SAR units subject to the grant.

(2)

Due to the ceiling imposed on the SAR grants, the outstanding amount equals a maximum of 121,250 shares of the Company’s common stock issuable upon exercise.

(3)

Due to the ceiling imposed on the SAR grants, the exercisable amount equals a maximum of 121,250 shares of the Company’s common stock issuable upon exercise.

As of March 31, 2022, there were no unrecognized compensation expenses related to unvested stock options and SARs.

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 three 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 first anniversary of the grant date. Starting in 2018, RSUs granted to non-employee directors would generally vest in two 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 9,935, 5,961, 7,451 and 5,961 time-based RSUs, effective as of February 17, 2022, to each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, pursuant to the Company’s Amended and Restated 2011 Stock Incentive Plan (the “2011 Plan”). The RSU grants vest 33.4% on February 17, 2023, 33.3% on February 17, 2024 and 33.3% on February 17, 2025.

Also, on February 14, 2022, the Committee granted 14,903, 3,974, 4,969 and 3,974 performance-based stock units (“PSUs”), effective as of February 17, 2022, to each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, pursuant to 2011 Plan (collectively, the “Short-Term Executive PSUs”). The performance goals for the Short-Term Executive PSUs with specified weighting are as follows:

Weighting	Goals
50%	Vesting of the full 50% of the PSUs occurs if the Company achieves the 2022 license, NRE and related revenue target approved by the Board (the “2022 License Revenue Target”). The vesting threshold is achievement of 90% of 2022 License Revenue Target. If the Company’s actual result exceeds 90% of the 2022 License Revenue Target, every 1% increase of the 2022 License Revenue Target, up to 110%, would result in an increase of 2% of the eligible PSUs.
50%	Vesting of the full 50% of the PSUs occurs if the Company achieves positive total shareholder return whereby the return on the Company’s stock for 2022 is greater than the S&P500 index. The vesting threshold is if the return on the Company’s stock for 2022 is at least 90% of the S&P500 index. If the return on the Company’s stock, in comparison to the S&P500, is above 90% but less than 99% of the S&P500 index, 91% to 99% of the eligible PSUs would be subject to vesting. If the return on the Company’s stock exceeds 100% of the S&P500 index, every 1% increase in comparison to the S&P500 index, up to 110%, would result in an increase of 2% of the eligible PSUs.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

(in thousands, except share data)

Additionally, PSUs representing an additional 20%, meaning an additional 2,981, 795, 994 and 795, would be eligible for vesting for each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, if the performance goals set forth above are exceeded.

Subject to achievement of the thresholds the above performance goals for 2022 and continuing employment, the Short-Term Executive PSUs vest 33.4% on February 17, 2023, 33.3% on February 17, 2024, and 33.3% on February 17, 2025.

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 RSUs and PSUs			Weighted Average Grant-Date Fair Value
Unvested as of December 31, 2021		688,073		$	41.18
Granted		239,557			38.51
Vested		(163,137	)		34.48
Forfeited or expired		(33,235	)		51.34
Unvested as of March 31, 2022 (unaudited)		731,258		$	41.34

As of March 31, 2022, there was $23,965 of unrecognized compensation expense related to unvested RSUs and PSUs. This amount is expected to be recognized over a weighted-average period of 1.7 years.

The following table shows the total equity-based compensation expense included in the interim condensed consolidated statements of income (loss):

	Three months ended March 31,
	2022 (unaudited)		2021 (unaudited)
Cost of revenue	$	339	$	143
Research and development, net		1,995		1,685
Sales and marketing		333		418
General and administrative		722		952
Total equity-based compensation expense	$	3,389	$	3,198

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 March 31,
	2022 (unaudited)			2021 (unaudited)
Expected dividend yield		0	%			0	%
Expected volatility		38	%	39%	-	56	%
Risk-free interest rate		0.5	%	0.1%	-	1.7	%
Contractual term of up to (months)		24				24

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 $15,800 and $4,500, respectively.

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	$	186	$	63
Total	$	186	$	63

Derivative liabilities:
Derivatives designated as cash flow hedging instruments:
Foreign exchange forward contracts	$	11	$	—
Total	$	11	$	—

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 March 31,
	2022 (unaudited)		2021 (unaudited)
Derivatives designated as cash flow hedging instruments:
Foreign exchange option contracts	$	—	$	(1	)
Foreign exchange forward contracts		2		(49	)
	$	2	$	(50	)

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 March 31,
	2022 (unaudited)		2021 (unaudited)
Derivatives designated as cash flow hedging instruments:
Foreign exchange option contracts	$	—	$	—
Foreign exchange forward contracts		110		22
	$	110	$	22

The Company recorded in cost of revenues and operating expenses a net loss of $110 during the three months ended March 31, 2022, and a net loss of $22 during the comparable period of 2021, related to its Hedging Contracts.

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	$	(427	)	$	55	$	(372	)	$	478		$	—		$	478
Other comprehensive income (loss) before reclassifications		(2,167	)		4		(2,163	)		(360	)		(44	)		(404	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			97		97			—			19			19
Net current period other comprehensive income (loss)		(2,167	)		101		(2,066	)		(360	)		(25	)		(385	)
Ending balance	$	(2,594	)	$	156	$	(2,438	)	$	118		$	(25	)	$	93

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 (unaudited)			2021 (unaudited)
Unrealized gains (losses) on cash flow hedges	$	(2	)	$	—		Cost of revenues
		(96	)		(19	)	Research and development
		(3	)		(1	)	Sales and marketing
		(9	)		(2	)	General and administrative
		(110	)