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.) |
| | 20850 |
| (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 |
| | | The |
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:
| Page |
||
| PART I. |
||
| Item 1. |
Interim Condensed Consolidated Balance Sheets at June 30, 2023 (unaudited) and December 31, 2022 |
|
| Notes to the Interim Condensed Consolidated Financial Statements |
||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
| Item 3. |
||
| Item 4. |
||
|
|
|
|
| PART II. |
||
| Item 1. |
||
| Item 1A. |
||
| Item 2. |
||
| Item 3 |
||
| Item 4 |
||
| Item 5 |
||
| Item 6 |
||
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 having chip design expertise as part of our offerings through our Intrinsix business unit strengthens our relationships with customers, streamlines IP adoption, generates recurrent royalties and more, and that Intrinsix’s experience and customer base in the growing chip development programs with the U.S. Department of Defense and Defense Advanced Research Projects Agency (DARPA) together with its IP offerings for processor security and chiplets extends our serviceable market and revenue base; |
| ● |
Our belief that our portfolio of wireless connectivity and smart sensing technologies address some of the most important megatrends, including 5G, generative AI, industrial automation and vehicle electrification, and our belief in the continued interest in our portfolio, in both traditional and new areas; |
| ● |
Our belief that our PentaG2 platform for 5G handsets and 5G IoT endpoints is the most comprehensive baseband IP platform in the industry today and provides newcomers and incumbents with a comprehensive solution to address the need for 5G processing for smartphones, fixed wireless access, satellite communications 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 base station radio access network (RAN) and our PentaG RAN platform put us in a strong position to capitalize on the growing 5G RAN demand and the its disintegration toward new architecture and form factors, and that our PentaG RAN platform for 5G RAN settings is the most comprehensive baseband processor IP in the industry today and provides customers and incumbents with a comprehensive solution to address the need for 5G; |
| ● |
Our belief that our Bluetooth, Wi-Fi, Ultra Wide Band (UWB) and cellular IoT IPs allow us to address the high volume IoT industrial, consumer and smart home market, and expectation that the overall addressable market will be more than 15 billion devices annually by 2027 based on research from ABI Research; |
| ● |
Our belief that Wi-Fi presents a significant royalty opportunity given our dominant market position in licensing Wi-Fi 6 to more than 35 customers to date; |
| ● |
Our belief that the growing market for True Wireless Stereo (TWS) earbuds, smartwatches, AR and VR headsets, and other wearable assisted devices, offers an incremental growth segment for us for our software IP; |
| ● |
Our belief that our second generation SensPro2 sensor hub DSP family provides highly compelling offerings for any sensor-enabled devices and applications and enables us to address the transformation in devices enabled by these applications and expand our footprint and content in smartphones, drones, consumer cameras, surveillance, automotive safety, voice-enabled devices and industrial IoT applications; |
| ● |
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 per research from Yole Group; |
| ● |
Our belief that our newest generation family of AI NPUs present a highly-efficient and high performance architecture to enable generative and classic AI on any device including communication gateways, optically connected networks, cars, notebooks and tablets, AR/VR headsets, smartphones, and any other cloud or edge use case from the edge all the way to the cloud, , and that more than 2.5 billion Edge AI devices will ship annually by 2026 based on research from Yole Group; |
| ● |
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, in addition to our existing portfolio for camera-based computer vision and AI processing, and microphone-based sound processing; |
| ● |
Our expectation that we are well positioned for long-term growth in revenues in the base station and IoT product categories, including from a range of different products at different royalty ASPs, spanning from high volume Bluetooth and Wi-Fi to high value sensor fusion and base station RAN; |
| ● |
Our expectation that a significant portion of our future revenues will continue to be generated by a limited number of customers, in part due to consolidation in the semiconductor industry; |
| ● |
Our belief that volatility in the global economic climate and financial markets could result in a significant change in the value of our investments; |
| ● |
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 expectation that we will continue to experience the effect of exchange rate and currency fluctuations on an annual and quarterly basis; and |
| ● |
Our belief that fluctuations in high interest rates within our investment portfolio will not have a material effect on our financial position on an annual or quarterly basis. |
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
| June 30, | 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 both June 30, 2023 and December 31, 2022) | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Long-term assets: | ||||||||
| Bank deposits | ||||||||
| 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 June 30, 2023 and December 31, 2022. and shares outstanding at June 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid in-capital | ||||||||
| Treasury stock at cost ( and shares of common stock at June 30, 2023, and December 31, 2022, 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
| Six months ended |
Three months ended | |||||||||||||||
| June 30, |
June 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| 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 and diluted net loss per share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted-average shares used to compute net loss per share (in thousands): |
||||||||||||||||
| Basic and 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
| Six months ended | Three months ended | |||||||||||||||
| June 30, |
June 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Net loss: |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income (loss) before tax: |
||||||||||||||||
| Available-for-sale securities: |
||||||||||||||||
| Changes in unrealized 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 income (loss) before tax |
( |
) | ( |
) | ||||||||||||
| Income tax expense (benefit) related to components of other comprehensive income (loss) |
( |
) | ( |
) | ||||||||||||
| Other comprehensive income (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 |
||||||||||||||||||||||||||||
| Six months ended June 30, 2023 |
Number of shares outstanding |
Amount |
Additional paid-in capital |
Treasury stock |
Accumulated other comprehensive income (loss) | Retained earnings |
Total stockholders’ equity |
|||||||||||||||||||||
| Balance as of January 1, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive income |
— | |||||||||||||||||||||||||||
| Equity-based compensation |
— | |||||||||||||||||||||||||||
| Issuance of treasury stock upon exercise of stock-based awards |
( |
) | ( |
) | ||||||||||||||||||||||||
| Balance as of June 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Common stock |
||||||||||||||||||||||||||||
| Three months ended June 30, 2023 |
Number of shares outstanding |
Amount |
Additional paid-in capital |
Treasury stock |
Accumulated other comprehensive income (loss) | Retained earnings |
Total stockholders’ equity |
|||||||||||||||||||||
| Balance as of April 1, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive income |
— | |||||||||||||||||||||||||||
| Equity-based compensation |
— | |||||||||||||||||||||||||||
| Issuance of treasury stock upon exercise of stock-based awards |
( |
) | ( |
) | ||||||||||||||||||||||||
| Balance as of June 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
U.S. dollars in thousands, except share data
| Common stock |
||||||||||||||||||||||||||||
| Six months ended June 30, 2022 |
Number of shares outstanding |
Amount |
Additional paid-in capital |
Treasury stock |
Accumulated other comprehensive income (loss) | Retained earnings |
Total stockholders’ equity |
|||||||||||||||||||||
| Balance as of January 1, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive loss |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Equity-based compensation |
— | |||||||||||||||||||||||||||
| Purchase of treasury stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Issuance of treasury stock upon exercise of stock-based awards |
( |
) | ( |
) | ||||||||||||||||||||||||
| Balance as of June 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Common stock |
||||||||||||||||||||||||||||
| Three months ended June 30, 2022 |
Number of shares outstanding |
Amount |
Additional paid-in capital |
Treasury stock |
Accumulated other comprehensive income (loss) | Retained earnings |
Total stockholders’ equity |
|||||||||||||||||||||
| Balance as of April 1, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive loss |
— | ( |
) | ( |
) | |||||||||||||||||||||||
| Equity-based compensation |
— | |||||||||||||||||||||||||||
| Purchase of treasury stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Issuance of treasury stock upon exercise of stock-based awards |
( |
) | ( |
) | ||||||||||||||||||||||||
| Balance as of June 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
U.S. dollars in thousands
| Six months ended |
||||||||
| 2023 |
2022 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments required to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Depreciation |
||||||||
| Amortization of intangible assets |
||||||||
| Equity-based compensation |
||||||||
| Realized loss (gain) on sale of available-for-sale marketable securities |
( |
) | ||||||
| Amortization of premiums on available-for-sale marketable securities |
||||||||
| Unrealized foreign exchange loss (gain) |
( |
) | ||||||
| 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 (used in) operating activities |
( |
) | ||||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
( |
) | ( |
) | ||||
| Acquisition of business |
( |
) | ||||||
| Investment in bank deposits |
( |
) | ||||||
| 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: |
||||||||
| Purchase of treasury stock |
( |
) | ||||||
| Proceeds from exercise of stock-based awards |
||||||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
( |
) | ||||||
| Increase (decrease) 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 is a provider of chip design services. The Company’s offerings include Digital Signal Processors (“DSPs”), AI processors, short and long range connectivity solutions, 5G wireless platforms and complementary software for sensor fusion, spatial audio, image enhancement, computer vision, voice input and artificial intelligence, all of which are key enabling technologies for a smarter, more connected world. These technologies are offered in combination with Non-Recurring Engineering (“NRE”) services from CEVA’s Intrinsix Corp. (“Intrinsix”) business, helping customers address their most complex and time-critical integrated circuit design projects. CEVA’s DSP and AI neural processing unit (“NPU”) platforms address the technology requirements of: 5G baseband processing for mobile, broadband, cellular IoT and Radio Access Network (“RAN”); generative AI workloads associated with 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, CEVA’s Hillcrest Labs sensor processing technologies provide a broad range of 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 business also expands its market reach to the aerospace and defense markets and allows it to offer custom System on Chip (“SoC”) solutions that combine CEVA’s standardized, off-the-shelf IP together with Intrinsix’s 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 and six months ended June 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. 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, 2022.
The significant accounting policies applied in the annual consolidated financial statements of the Company as of December 31, 2022, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2023, have been applied consistently in these unaudited interim condensed consolidated financial statements.
Accounting Standards Recently Issued, Not Yet Adopted by the Company
In June 2022, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The guidance is effective for annual periods beginning after December 15, 2023, with early adoption permitted. The adoption of this standard is not expected to result in 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.
| NOTE 3: |
ACQUISITION |
In May 2023, the Company entered into an agreement to acquire the VisiSonics 3D spatial audio business (“VisiSonics”). Under the terms of the agreement, the Company agreed to pay an aggregate of $
In addition, the Company incurred acquisition-related expenses associated with the VisiSonics transaction in a total amount of $
The results of VisiSonics's operations have been included in the interim condensed consolidated financial statements since May 5, 2023. Pro forma results of operations related to this acquisition have not been prepared because they are not material to the Company's consolidated statement of income.
The acquisition of the VisiSonics business has been accounted in accordance with FASB Accounting Standards Codification (“ASC”) No. 805, “Business Combinations”. Under the acquisition method of accounting, the total purchase price is allocated to the intangible assets based on their fair values on the closing date. The excess of the purchase price over the identifiable intangible assets was recorded as goodwill.
The purchase price allocations have been prepared on a preliminary basis based on information that was available to the Company at the time the condensed consolidated financial statements were prepared, and revisions to the preliminary purchase price allocations may result as additional information becomes available.
Goodwill generated from this business combination is attributed to synergies between the Company's and VisiSonics's respective products and services.
The preliminary purchase price allocation for the acquisition has been determined as follows:
| Intangible assets: |
||||
| Technologies |
$ | |||
| Customer relationships |
||||
| Goodwill |
||||
| Total assets |
$ |
| NOTE 4: | REVENUE RECOGNITION |
Under ASC No. 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.
Revenues that are derived from the sale of a licensee’s products that incorporate the Company’s IP are classified as royalty revenues. Royalty revenues are recognized during the quarter in which the sale of the product incorporating the Company’s IP occurs. Royalties are calculated either as a percentage of the revenues received by the Company’s licensees on sales of products incorporating the Company’s IP or on a per unit basis, as specified in the agreements with the licensees. When the Company does not receive actual sales data from the customer prior to the finalization of its financial statements, royalty revenues are recognized based on the Company’s estimation of the customer’s sales during the quarter.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
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 2023 | 2024 | 2025 | ||||||||||
| 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:
| Six months ended June 30, 2023 (unaudited) | Three months ended June 30, 2023 (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 | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Six months ended June 30, 2022 (unaudited) | Three months ended June 30, 2022 (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
Contract balances:
The following table provides information about trade receivables, unbilled receivables and contract liabilities from contracts with customers:
| June 30, 2023 (unaudited) | December 31, 2022 | |||||||
| 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 and six months ended June 30, 2023, the Company recognized $
| NOTE 5: | 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.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
The following is a summary of weighted average remaining lease terms and discount rates for all of the Company’s operating leases:
| June 30, 2023 (Unaudited) | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rates | % | |||
Total operating lease cost and cash payments for operating leases were as follows:
| Six months ended | Three months ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Cash payments for operating leases | ||||||||||||||||
Maturities of lease liabilities are as follows:
| The remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 and thereafter | ||||
| Total undiscounted cash flows | ||||
| Less imputed interest | ||||
| Present value of lease liabilities | $ |
| NOTE 6: | MARKETABLE SECURITIES |
The following is a summary of available-for-sale marketable securities:
| June 30, 2023 (Unaudited) | ||||||||||||||||
| Amortized | Gross | Gross | Fair | |||||||||||||
| Available-for-sale - matures within one year: | ||||||||||||||||
| Corporate bonds | $ | $ | $ | ( | ) | $ | ||||||||||
| Available-for-sale - matures after one year through four years: | ||||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||
| Total | ||||||||||||||||
| $ | $ | $ | ( | ) | $ | |||||||||||
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
| December 31, 2022 | ||||||||||||||||
| 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 | $ | $ | $ | ( | ) | $ | ||||||||||
The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of June 30, 2023, and December 31, 2022, 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 June 30, 2023 (unaudited) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| As of December 31, 2022 | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
As of June 30, 2023, the allowance for credit losses was not material.
The following table presents gross realized gains and losses from sale of available-for-sale marketable securities:
| Six months ended | Three months ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Gross realized gains from sale of available-for-sale marketable securities | $ | $ | $ | $ | ||||||||||||
| Gross realized losses from sale of available-for-sale marketable securities | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NOTE 7: | 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). |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
The Company measures its marketable securities, investments in marketable equity securities and foreign currency derivative contracts at fair value. The carrying amount of cash, cash equivalents, short-term bank deposits, trade receivables, other accounts receivable, trade payables and other accounts payables approximate fair value due to the short-term maturity of these instruments. Investments 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 and liabilities 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.
| Description | June 30, 2023 (unaudited) | Level I (unaudited) | Level II (unaudited) | Level III (unaudited) | ||||||||||||
| Assets: | ||||||||||||||||
| Marketable securities: | ||||||||||||||||
| Corporate bonds | $ | $ | ||||||||||||||
| Foreign exchange contracts | ||||||||||||||||