TECHPOINT, INC. Information Regarding Forward-Looking Statements
This Quarterly Report on Form10-Q includes forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words "anticipate", "believe," "continue," "could," "design," "estimate," "intend," "may," "plan," "project," "will," "expect," or the negative version of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including the following:
• our future financial performance, including our revenue, cost of sales and
operating expenses;
• our market opportunity and our ability to effectively manage or sustain
our growth;
• our ability to attract and retain end-customers in our current or future
target markets;
• our ability to continue to develop new technologies and obtain and
maintain intellectual property rights protecting such technologies;
• our ability to form and expand partnerships with technology partners and
consulting partners;
• our ability to maintain, protect and enhance our intellectual property;
• our ability to successfully defend litigation brought against us; • new product releases and timing;
• anticipated trends, key factors and challenges in our business and the
competition that we face;
• the effect of the COVID-19 pandemic on our business and the success of any
measures we have taken or may take in the future in response thereto;
• laws and regulations applicable to our business, including the expected
impact of restrictions to be imposed by the FCC pursuant to the Secure
Equipment Act of 2021;
• the impact of global shortages in manufacturing capacities;
• our liquidity and working capital requirements; and
• our expectations regarding future expenses and investments.
In light of these risks, uncertainties and assumptions, the forward-looking
events and circumstances discussed in this Quarterly Report on Form 10-Q may not
occur, and actual results could differ materially and adversely from those
anticipated or implied in the forward-looking statements. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, level of activity, performance,
or achievements. Any forward-looking statement made by us in this Quarterly
Report on Form 10-Q is as of the date on which it is filed with the Securities
and Exchange Commission ("SEC"). We do not intend to update any of these
forward-looking statements after the date of this Quarterly Report on Form 10-Q,
except as required by law.
General Background
The following discussion and analysis should be read together with our condensed
consolidated financial statements and the notes to those statements that appear
in this Quarterly Report on Form 10-Q and our consolidated financial statements
and the notes to those statements that appear in our Annual Report on Form 10-K
for the year ended December 31, 2021 . This discussion contains forward-looking
statements based on our current expectations, assumptions, estimates and
projections. These forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those indicated in these
forward-looking statements as a result of certain factors, as more fully
described in "Risk Factors" in this Quarterly Report on Form 10-Q.
In this Quarterly Report on Form 10-Q, unless otherwise specified or the context
otherwise requires, "Techpoint," "we," "us," and "our" refer to Techpoint, Inc.
and its consolidated subsidiaries.
18
--------------------------------------------------------------------------------
We have obtained or are in the process of obtaining registered trademarks for
Techpoint and HD-TVI. This Quarterly Report on Form 10-Q contains references to
our trademarks and to trademarks belonging to other entities. Solely for
convenience, trademarks and trade names referred to in this report, including
logos, artwork and other visual displays, may appear without the ® or ™ symbols,
but such references are not intended to indicate, in any way, that we will not
assert, to the fullest extent under applicable law, our rights or the rights of
the applicable licensor to these trademarks and trade names. We do not intend
our use or display of other companies' trade names or trademarks to imply a
relationship with, or endorsement or sponsorship of us by, any other companies.
Overview
We are a fabless semiconductor company that designs, markets and sells
mixed-signal integrated circuits for multiple video applications in the security
surveillance and automotive markets. Our integrated circuits are enabling the
transition from standard definition ("SD") video to high definition ("HD") video
in the security surveillance and automotive markets.
Our solutions take HD video signals from a camera and convert them into analog
signals for reliable long-distance transmission, then convert the HD analog
signal into the appropriate format for video processing and display. Our HD
analog technology operates at the same 1080p HD resolution as digital HD, but
processes video in an HD analog format and transmits the video in this same
analog format, thereby eliminating the need for any compression or
decompression. Our integrated circuits are based on our proprietary architecture
and mixed signal technologies that we believe provide high video quality, enable
high levels of integration and are cost effective. Our integrated circuits are
used by security surveillance manufacturers, such as Hikvision in China , IDIS in
South Korea and AVTech in Taiwan .
We derive our revenue from sales of our mixed-signal integrated circuits into
the security surveillance and automotive markets. We began shipping our products
in 2013 and to date, we have sold 215 million integrated circuits. Our revenue
was $48.6 million and $47.2 million for the nine months ended September 30, 2022
and 2021, respectively. The security surveillance market accounted for 43% and
52% of our revenue in the nine months ended September 30, 2022 and 2021,
respectively. The automotive market accounted for a 57% and 48% of our revenue
in the nine months ended September 30, 2022 and 2021, respectively. We
recognized $20.8 million and $24.4 million of revenue on sales into the security
surveillance market for the nine months ended September 30, 2022 and 2021,
respectively. In addition, we recognized $27.8 million and $22.8 million of
revenue on sales into the automotive market for the nine months ended
September 30, 2022 and 2021, respectively. We recorded net income of $12.6
million and $12.7 million for the nine months ended September 30, 2022 and 2021,
respectively.
We sell our products to distributors that fulfill third-party orders for our
products. We also sell directly to original design manufacturers ("ODM"). For
the nine months ended September 30, 2022 and 2021, we derived substantially all
of our revenue from products sold to distributors as compared to products sold
to ODM directly.
We undertake significant product development efforts well in advance of a
product's release and in advance of receiving purchase orders. Our product
development efforts, which are focused on developing new designs with broad
demand and potential for future derivative products, typically take from six to
twenty-four months until production begins, depending on the product's
complexity. If we secure a design win, we believe the system designer is likely
to continue to use the same or enhanced versions of our product across a number
of their models, tending to extend the life cycles of our products. Conversely,
if a competitor secures the design win, it may be difficult for us to sell into
the end-customer's application for an extended period. Our sales cycle typically
ranges from one to three years for the automotive market and three to six months
for the security surveillance market. Due to the length of our product
development and sales cycle, the majority of our revenue for any period is
likely to be weighted toward products introduced for sale in the prior one or
two years. As a result, our present revenue is not necessarily representative of
future sales because our future sales are likely to be comprised of a different
mix of products, some of which are now in the development stage.
We employ a fabless manufacturing strategy and use market-leading suppliers for
all phases of the manufacturing process, including wafer fabrication, assembly,
testing and packaging. This strategy significantly reduces the capital
investment that would otherwise be required to operate manufacturing facilities
of our own.
We have made significant investments in research and development in order to
develop our products to attract and retain end-customers. Our research and
development expense was $2.0 million and $2.0 million for the three months ended
September 30, 2022 and 2021, respectively, and $6.2 million and $4.7 million for
the nine months ended September 30, 2022 and 2021, respectively. Our research
and development expenses can vary from period-to-period and can be significantly
impacted by the number of tape-outs and new products that we initiate in any
given period. As of September 30, 2022 , we had 80 employees, 27 of whom are in
research and development. Our headquarters are located in San Jose, California ,
with additional operations in Japan , Taiwan , China and South Korea .
19
--------------------------------------------------------------------------------
Effective October 9, 2019 , the U.S. Commerce Department's Bureau of Industry and
Security ("BIS") added Hikvision, a customer that represented 37% and 40% of our
revenue for the three months ended September 30, 2022 and 2021, respectively,
and 36% and 38% of our revenue for the nine months ended September 30, 2022 and
2021, respectively, to the BIS Entity List with a license requirement for all
items subject to the Export Administration Regulations ("EAR"). The BIS Entity
List is a published list of the names of certain foreign persons, including
businesses, research institutions, government and private organizations and
individuals, that are subject to specific governmental license requirements for
the export, reexport and/or transfer of specified items. These license
requirements could make it more difficult to ship, or in some cases, prevent the
shipment of products to certain foreign persons named on the BIS Entity List.
We have taken action to confirm whether our products are subject to EAR. We have
retained the continuous assistance of outside experts and, following Hikvision's
designation on the BIS Entity List, performed a comprehensive review of our
products and manufacturing operations. Based on that review, we have concluded
that our products are not subject to EAR. Therefore, our products may continue
to be shipped to Hikvision without a U.S. export license, even though Hikvision
appears on the BIS Entity List.
On November 12, 2020 , President Trump issued Executive Order 13959 on Addressing
the Threat from Securities Investments that Finance Communist Chinese Military
Companies which prohibits any transaction in publicly traded securities, or any
securities that are derivative of, or are designed to provide investment
exposure to such securities, of any identified Communist Chinese military
company, which included Hikvision. On June 3, 2021 , President Biden issued
Executive Order 14032 amending the prior Executive Order. As amended, Executive
Order 13959 continues to prohibit certain transactions involving the purchase or
sale of publicly traded securities of designated companies. Restrictions are
applicable to certain entities designated as Chinese Military-Industrial Complex
Companies who have been placed on the "CMIC List." Hikvision was listed in the
Annex to Executive Order 14032 and is currently on the CMIC List. However,
Hikvision is not on the Specially Designated Nationals (SDN) List and the
restrictions imposed by these Executive Orders are not expected to directly
impact our business.
On November 11, 2021 , President Biden signed into law the Secure Equipment Act
of 2021, which requires the U.S. Federal Communications Commission ("FCC") to
adopt rules no later than November 11, 2022 clarifying that it will no longer
review or approve any application for equipment authorization for equipment that
is on the list of covered communications equipment or services published by the
FCC under section 2(a) of the Secure and Trusted Communications Networks Act of
2019. Items on the FCC's "covered list" include video surveillance and
telecommunications equipment produced by Hikvision, to the extent it is used for
the purpose of public safety, security of government facilities, physical
security surveillance of critical infrastructure, and other national security
purposes, including telecommunications or video surveillance services provided
by such entity or using such equipment. The restrictions to be imposed by the
FCC pursuant to the Secure Equipment Act of 2021 would impact imports of certain
Hikvision equipment into the United States but are currently not expected to
directly impact our business. This may or may not impact our revenue in the
future. In the event there is an impact on our revenue, we believe that it would
be gradual and limited in scope because Hikvision continues to sell its
currently approved products in the U.S. and because other manufacturers that
incorporate our products could take market share from Hikvision in the U.S. We
believe that our revenue would decrease only a few percentage points even if
Hikvision's business is fully impacted by the restrictions to be enacted, which
would limit Hikvision's ability to import its products into the U.S.
Additionally, we plan to continue growing our revenue from new and existing
customers, thus further limiting the impact of the restrictions to be imposed by
the FCC when regulations are enacted and which may impact the importation of
certain of Hikvision's future products into the U.S.
On October 7, 2022 , BIS placed on public display an interim final rule amending
the EAR to, among other things, implement controls on advanced computing
integrated circuits, computer commodities that contain such circuits, and
certain semiconductor manufacturing items. We have reviewed this rule and do not
expect it to directly impact our business.
The above conclusions are as of the date of filing of this Quarterly Report on
Form 10-Q. It is possible that changes in U.S. regulations or policies in the
future may impose restrictions, including the imposition of license requirements
or even a full or partial prohibition, on our sale of products to Hikvision.
Key Factors Affecting Our Results of Operations
Macroeconomic and Geopolitical Conditions. We have been impacted by adverse macroeconomic and geopolitical conditions. These conditions include but are not limited to inflation, foreign currency fluctuations, the COVID-19 pandemic and related supply chain challenges and disruptions caused by any of these events. Management continues to actively monitor the impact of these conditions on the Company's financial condition, liquidity, operations, end-customers (including its significant end-customers), distributors, suppliers, industry, and workforce. The extent to which such events impact the Company's business, prospects and results of operations will depend on future developments, which are highly uncertain. As our products are primarily sold inAsia , we are particularly impacted by shutdowns and government actions in the countries in that region. The COVID-19 pandemic continues to have an impact on our business and that of our customers and suppliers. This has resulted in government authorities implementing numerous measures to try to contain the pandemic, such as travel bans and 20 -------------------------------------------------------------------------------- restrictions, quarantines, shelter-in-place or stay-at-home orders, business shutdowns and vaccination efforts. All of our offices in theU.S. ,Japan ,China ,South Korea andTaiwan have been impacted by COVID-19 and have been subject to various measures implemented by local governments to reduce its spread. These measures may adversely impact our employees and operations and the operations of our end-customers (including our significant end-customers), distributors and suppliers, and may negatively impact our sales and marketing activities. Actions taken by government authorities to limit COVID-19 may be re-implemented for a significant period of time, which could adversely affect our sales and marketing activities, product delivery schedule, and our business, financial condition and results of operations. Despite these limitations, we have been able to secure products from our suppliers, fulfill our customers' purchase orders and increase revenues during the nine months endedSeptember 30, 2022 as compared to the same period in the previous year. Ability to attract and retain customers that make large orders. While we expect the composition of our end-customers to change over time, our business and operating results depend on our ability to continually target new and retain existing end-customers that make large orders. As previously noted, Hikvision, the largest security surveillance manufacturer inChina , is one of our end-customers. Although large customers can help us increase our revenue and improve our results of operations, reliance on large customers is a risk to our business. For example, Section 889 of the 2019 National Defense Authorization Act ("NDAA") could adversely impact our business with Hikvision. Section 889(a)(1)(A) went into effect onAugust 13, 2019 and prohibitsU.S. government agencies from procuring or obtaining equipment or services that use covered telecommunications equipment or services as a substantial or essential component or critical technology, including certain video surveillance products or telecommunications equipment and services produced or provided by Hikvision. OnJuly 14, 2020 , theU.S. government issued an interim final rule that implements Section 889(a)(1)(B) effective as ofAugust 13, 2020 . This rule prohibits theU.S. government from entering into contracts with persons who use covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system, which again includes certain Hikvision video surveillance products. Although Section 889 does not prohibit commercial sales of video surveillance products by Hikvision in theU.S. , which we understand is the predominant business Hikvision does in theU.S. with video surveillance products that incorporate our products, the impact of these new regulations and the uncertainty ofU.S. andChina trade relations may adversely impact our business in the future with Hikvision and other significant customers. Design wins with new and existing customers. We believe our products provide high-quality HD video with an attractive combination of characteristics, at a lower overall cost than competing solutions. In order to get our solutions designed into our end-customer's products, we work with our end-customers and potential end-customers to understand their product roadmaps and strategies. We consider design wins to be critical to our future success. We define a design win as the successful completion of the evaluation stage, where an end-customer has tested our product, verified that our product meets its requirements and qualified our integrated circuits for their products. We have secured design wins with major automotive manufacturers to sell our solutions to them for automotive backup cameras. The revenue that we generate, if any, from each design win can vary significantly. Our long-term sales expectations are based on forecasts from end-customers, internal estimates of end-customer demand factoring in expected time to market for end-customer products incorporating our solutions and associated revenue potential and internal estimates of overall demand based on historical trends. Pricing, product cost and gross margins of our products. Our gross margin has been and will continue to be affected by a variety of factors, including the timing of changes in pricing, shipment volumes, new product introductions, changes in product mixes, changes in our purchase price of fabricated wafers and assembly and test service costs, manufacturing yields and inventory write downs, if any. In general, newly introduced products and products with higher performance and more features tend to be priced higher than older, more mature products. Average selling prices in the semiconductor industry typically decline as products mature. Consistent with this historical trend, we expect that the average selling prices of our products will decline as they mature. In the normal course of business, we will seek to offset the effect of declining average selling prices on existing products by reducing manufacturing costs and introducing new and higher value-added products. If we are unable to maintain overall average selling prices or offset any declines in average selling prices with realized savings on product costs, our gross margin will decline. Product adoption and safety regulations in the automotive market. We have secured design wins with major automotive equipment manufacturers to sell our solutions to them for automotive backup cameras. Certain jurisdictions, includingthe United States , have passed laws and regulations requiring that all new cars sold after a certain date must contain back-up cameras including with respect to cars sold inthe United States afterMay 2018 . If these jurisdictions do not maintain and implement these rules, or if back-up cameras are not put into automobiles sold in other locations as well, or do so more slowly than we expect, our financial results could be adversely affected. Investment in growth. We have invested, and intend to continue to invest, in expanding our operations, increasing our headcount, developing our products and differentiated technologies to support our growth and expanding our infrastructure. We expect our total operating expenses to increase significantly in the foreseeable future to meet our growth objectives. We plan to continue to invest in our sales and support operations throughout the world, with a particular focus in the near term of adding additional sales and field applications personnel in theAsia-Pacific region to further broaden our support and coverage of our existing end-customer base, 21 -------------------------------------------------------------------------------- in addition to developing new end-customer relationships and generating design wins. We also intend to continue to invest additional resources in research and development to support the development of our products and differentiated technologies. Any investments we make in our sales and marketing organization or research and development will occur in advance of experiencing any benefits from such investments, and the return on these investments may be lower than we expect. In addition, as we invest in expanding our operations into new areas internationally, our business and results will become further subject to the risks and challenges of operations in those locations, including potentially higher operating expenses and the impact of legal and regulatory developments.
Components of Condensed Consolidated Income Statements
Revenue
We derive substantially all of our revenue through the sale of our products to distributors who, in turn, sell to our end-customers, which consists of ODM, contract manufacturers and design houses. Revenue is recognized in accordance with ASC 606 after we (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) satisfy the performance obligation when control is transferred to the customer. Cost of Revenue Cost of revenue primarily consists of costs paid to our third-party manufacturers for wafer fabrication, assembly and testing of our products. To a lesser extent, cost of revenue also includes write-downs of inventory for excess and obsolete inventory, depreciation of test equipment, and expenses relating to manufacturing support activities, including personnel-related costs, logistics and quality assurance and shipping.
Research and Development Expenses
Research and development expenses consist primarily of compensation and associated costs of employees engaged in research and development, contractor costs, tape-out costs, development testing and evaluation costs, and depreciation expense. Before releasing new products, we incur charges for mask sets, prototype wafers and mask set revisions, which we refer to as tape-out costs. Tape-out costs cause our research and development expenses to fluctuate because they are not incurred uniformly every quarter. We expect our research and development costs to increase in absolute dollars in the future as we increase our investment in new product development and headcount to support our development efforts.
Selling, General and Administrative Expenses
Selling expenses consist primarily of personnel-related costs for our sales, business development, marketing, and applications engineering activities, promotional and other marketing expenses, and travel expenses. We expect selling expenses to increase in absolute dollars for the foreseeable future as we continue to expand our sales teams and increase our marketing activities. General and administrative expenses consist primarily of personnel-related costs, consulting expenses, professional fees and facility costs. Professional fees principally consist of legal, audit, tax and accounting services. We expect general and administrative expenses to increase in absolute dollars for the foreseeable future as we hire additional personnel, make improvements to our infrastructure and incur significant additional costs for the compliance requirements of operating as aU.S. company that is publicly traded inJapan , including higher legal, insurance and accounting expenses. Personnel-related costs, including salaries, benefits, bonuses and stock-based compensation, are the most significant component of each of selling expenses and general and administrative expenses.
Provision for Income Taxes
The provision for income taxes consists of our estimated federal, state and
foreign income taxes based on our pre-tax income. Our provision differs from the
federal statutory rate primarily due to the research and development credit,
foreign derived intangible income deduction and stock-based compensation
deduction.
22
--------------------------------------------------------------------------------Results of Operations
The following table sets forth our condensed consolidated results of operations for the periods shown (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Revenue $ 15,505 $ 17,060 $ 48,585 $ 47,233
Cost of revenue (1) 6,904 7,919 21,414 21,524
Gross profit 8,601 9,141 27,171 25,709
Operating expenses: (1)
Research and development 2,012 2,037 6,230 4,700Selling, general and administrative 2,018 2,278 6,843
6,402
Total operating expenses 4,030 4,315 13,073 11,102
Income from operations 4,571 4,826 14,098 14,607
Other income (expense) - net 53 3 (29 ) 33
Income before income taxes 4,624 4,829 14,069 14,640
Income tax provision 469 573 1,435 1,905
Net income $ 4,155 $ 4,256 $ 12,634 $ 12,735
___________________(1) Includes stock-based compensation expense as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Cost of revenue $ 36 $ 39 $ 111 $ 117
Research and development 153 143 437 440
Selling, general and administrative 231 333 862 760
Total $ 420 $ 515 $ 1,410 $ 1,317
The following table sets forth the condensed consolidated statements of
operations data for each of the periods presented as a percentage of revenue:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 45 46 44 46
Gross profit 55 54 56 54
Operating expenses:
Research and development 13 12 13 10
Selling, general and administrative 13 13 14 14
Total operating expenses 26 25 27 24
Income from operations 29 29 29 30
Other income (expense) - net 1 (1 ) - 1
Income before income taxes 30 28 29 31
Income tax provision 3 3 3 4
Net income 27 % 25 % 26 % 27 %
23--------------------------------------------------------------------------------
Comparison of the Three and Nine Months Ended
Revenue (dollars in thousands)
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 Amount % 2022 2021 Amount %
Automotive $ 8,742 $ 8,315 $ 427 5 %
8,745 (1,982 ) (23 )% 20,778 24,460 (3,682 ) (15 )%
Revenue $ 15,505 $ 17,060 $ (1,555 ) (9 )% $ 48,585 $ 47,233 $ 1,352 3 %
Revenue decreased $1.6 million , or 9%, for the three months ended September 30,
2022 as compared to the three months ended September 30, 2021 . This was
primarily attributable a security surveillance revenue decrease of $2.0 million
due to a decrease in volume of shipments, slightly offset by an increase in
average selling price attributable to product mix, and a $0.4 million increase
in automotive market revenue due to an increase in average selling prices
attributable to product mix, offset by a decrease in volume of shipments.
Revenue increased $1.4 million , or 3%, for the nine months ended September 30,
2022 as compared to the nine months ended September 30, 2021 . This was primarily
attributable to a $5.0 million increase in automotive market revenue as a result
of an increase in the volume of shipments and an increase in average selling
price attributable to product mix, offset by a $3.7 million decrease in security
surveillance revenue due to a decrease in the volume of shipments offset by an
increase in average selling price attributable to product mix.
Our product pricing has increased in our target markets in response to our
increased manufacturing costs. Additionally, fluctuations in our overall average
selling price are directly attributable to changes in product mix given the
natural pricing variation of the products in our portfolio and customer base.
When the product mix shifts towards the higher priced products in our portfolio,
the average selling price will be higher than when the product mix shifts
towards the lower price point products. Decreases in the volume of shipments is
primarily reflective of customer buildup of product in the second quarter of
2022.
Revenue by geographic region
The table below sets forth revenue by geographic region as a percent of total revenue for the periods presented:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
China 69 % 69 % 70 % 69 %
Taiwan 13 16 13 17
South Korea 12 11 10 11
Japan 6 3 6 2
Other - 1 1 1
Total 100 % 100 % 100 % 100 %
Cost of revenue and gross margin (dollars in thousands)
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 Amount % 2022 2021 Amount %
Cost of revenue $ 6,904 $ 7,919 $ (1,015 ) (13 )% $ 21,414 $ 21,524 $ (110 ) (1 )%
Gross margin 55 % 54 % 56 % 54 %
Cost of revenue decreased by $1.0 million and $0.1 million in the three and nine
months ended September 30, 2022 , respectively, compared to the comparable
periods ended September 30, 2021 . Gross margins for the three and nine months
ended September 30, 2022 , increased to 55% to 56%, respectively, compared to the
comparable periods ended September 30, 2021 , due to changes in product mix and
market mix. We expect gross margins to fluctuate in future periods due to
changes in customer and product mix, market mix, average unit selling prices,
manufacturing costs, adjustments to inventory, if any, and end user product
demand.
24
--------------------------------------------------------------------------------Research and development expense (dollars in thousands)
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 Amount % 2022 2021 Amount %Research and development$ 2,012 $ 2,037 $ (25 ) (1 )%$ 6,230 $ 4,700 $ 1,530 33 % Research and development expenses decreased by$25,000 , or 1%, for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 , primarily due to a$0.3 million decrease in personnel-related expenses and$0.1 million decrease in software expenses, offset by a$0.3 million increase in tape-out and design services. Research and development expenses increased$1.5 million , or 33%, for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 , primarily due to a$1.6 million increase in tape-out and design services that occurred during the six months endedJune 30, 2022 .
Selling, general and administrative expense (dollars in thousands)
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 Amount % 2022 2021 Amount %
Selling, general and
administrative
7 %
Selling, general and administrative expenses decreased $0.3 million , or 11%, for
the three months ended September 30, 2022 as compared to the three months ended
September 30, 2021 , primarily due to a $0.3 million decrease in
personnel-related expense.
Selling, general and administrative expenses increased $0.4 million , or 7%, for
the nine months ended September 30, 2022 as compared to the nine months ended
September 30, 2021 , primarily due to a $0.5 million increase in
personnel-related expense, offset by a $0.2 million decrease in professional
services.
Other income (expense), net (dollars in thousands)
Three Months Ended September 30, Change Nine Months Ended September 30, Change
2022 2021 Amount % 2022 2021 Amount %
Other income
(expense), net $ 53 $ 3 $ 50 1667 % $ (29 ) $ 33 $ (62 ) (188 )%
Other income (expense), net increased $50,000 for the three months ended
September 30, 2022 as compared to the three months ended September 30, 2021 ,
primarily due to an increase in interest income, offset by losses related to
foreign currency exchange transactions and fluctuations. Other income (expense),
net decreased $62,000 for the nine months ended September 30, 2022 as compared
to the nine months ended September 30, 2021 , primarily due to losses related to
foreign currency exchange transactions and fluctuations offset by an increase in
interest income.
Provision for income taxes (dollars in thousands)
Nine Months Ended
Three Months Ended September 30, Change September 30, Change
2022 2021 Amount % 2022 2021 Amount %
Provision for income
taxes $ 469 $ 573 $ (104 ) (18 )% $ 1,435 $ 1,905 $ (470 ) (25 )%
The provision for income taxes decreased $0.1 million , or 18%, for the three
months ended September 30, 2022 as compared to the three months ended September
30, 2021 , primarily due to a decrease in pre-tax income, an increase in the
foreign-derived intangible income deduction and the capitalization of research
and development expenses for tax purposes.
The provision for income taxes decreased $0.5 million , or 25%, for the nine
months ended September 30, 2022 as compared to the nine months ended September
30, 2021 , primarily due to an increase in the foreign-derived intangible income
deduction and capitalization of research and development expenses for tax
purposes.
25
--------------------------------------------------------------------------------Liquidity and Capital Resources
Our primary use of cash is to fund our operations as we continue to grow our business. Cash used to fund operating expenses is impacted by the timing of when we pay expenses, as reflected in the changes in our outstanding accounts payable and accrued expenses. Our cash, cash equivalents, and short-term investments as ofSeptember 30, 2022 were$44.6 million . We believe our existing cash, cash equivalents, short-term investments, and cash we expect to generate from operations in the future will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced products and our costs to implement new manufacturing technologies or potentially acquire and integrate other companies or assets. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. Any debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Additionally, if we raise additional funds through further issuances of equity, or issue convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
A summary of operating, investing and financing activities are shown in the following table (in thousands):
Nine Months Ended
September 30,
2022 2021
Net cash provided by operating activities
Operating Activities Our primary source of cash from operating activities has been from cash collections from our customers. We expect cash inflows from operating activities to be affected by fluctuations in sales. Our primary uses of cash from operating activities have been for personnel costs and investments in research and development and sales and marketing.
During the nine months ended
Non-cash charges primarily consisted of stock-based compensation of$1.4 million , operating lease amortization of$0.6 million , an increase in the inventory valuation allowance of$0.4 million and depreciation and amortization of$0.3 million , partially offset by an increase in deferred tax assets of$1.2 million . Net cash outflows from changes in operating assets and liabilities totaled$0.2 million , primarily consisting of a$1.4 million increase in inventory, net of valuation allowance, as units manufactured during the period and on hand were in excess of product sales, and a$0.7 million decrease in accounts payable, lease and other liabilities. Outflows were offset by inflows from a$1.0 million increase in accrued liabilities, a$0.2 million decrease in accounts receivable due to timing of receipts from customers versus shipment of units, a$0.4 million decrease in prepaid expenses due to timing of payments, and a$0.3 million increase in customer deposits. During the nine months endedSeptember 30, 2021 , net cash used in operating activities was$12.4 million , primarily due to net income of$12.7 million , non-cash charges of$2.3 million and net cash outflows from changes in operating assets and liabilities of$2.7 million . Non-cash charges primarily consisted of stock-based compensation of$1.3 million , depreciation and amortization of$0.3 million and operating lease amortization of$0.6 million . Net cash outflows from changes in operating assets and liabilities totaled$2.7 million , primarily attributable to a$3.5 million cash outflow for inventory as units manufactured during the period and on hand were in excess of product sales during the period to support future demand and a$0.6 million cash outflow in lease liabilities and other liabilities due to the renewal of an operating lease, 26 -------------------------------------------------------------------------------- partially offset by a$0.5 million cash inflow in accrued liabilities due to the timing of services performed, a$ 0.5 million cash inflow due to an increase in accounts payable due to the timing of payments to vendors, and a$0.4 million cash decrease in customer deposits due to the timing of customer pre-payments.
Investing Activities
During the nine months endedSeptember 30, 2022 , cash provided in investing activities was$0.3 million , primarily due to a$12.9 million cash inflow due to proceeds from maturities of debt securities, partially offset by a$12.2 million cash outflow used to purchase debt securities and a$0.4 million cash outflow due to purchases of property and equipment. During the nine months endedSeptember 30, 2021 , cash provided in investing activities was$0.8 million , primarily due to$14.0 million cash inflow due to proceeds from maturities of debt securities, partially offset by a$12.9 million cash outflow used to purchase debt securities and a$0.3 million cash outflow due to purchases of property and equipment.
Financing Activities
During the nine months endedSeptember 30, 2022 , cash used in financing activities was$9.0 million , primarily due to payment of dividends totaling$9.0 million in February and July, 2022, as discussed in "Dividends" in Note 6 of Part I, Item 1 of this Quarterly Report on Form 10-Q, and$0.2 million in net proceeds from the exercise of stock options, offset by$0.2 million in payments for shares withheld for tax withholdings on vesting of restricted stock units. During the nine months endedSeptember 30, 2021 , cash used in financing activities was$15,000 due to net proceeds from the exercise of stock options of$0.2 million , offset by$0.2 million in payments for shares withheld for tax withholdings on vesting of restricted stock units.
Off-Balance Sheet Arrangements
During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies, Significant Estimates and Judgments
Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates, assumptions, and judgments on an ongoing basis. Our estimates, assumptions and judgments are based on historical experience and various other factors that we believe to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our financial statements, which, in turn, could change the results from those reported. Please see Note 1 of Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of significant accounting policies and Part II, Item 7 "Critical Accounting Estimates" of our Annual Report on Form 10-K for a summary of our critical accounting estimates.
© Edgar Online, source
