AMBARELLA INC 10-Q

ITEM 1. Financial Statements AMBARELLA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) (unaudited) As of April 30, January 31, 2021 2021 ASSETS Current assets: Cash and cash equivalents $ 227,509 $ 241,274 Marketable debt securities 208,020 199,434 Accounts receivable, net 34,528 24,974 Inventories 33,120 26,081 Restricted cash 10 10 Prepaid expenses and other current assets 5,361 5,531 Total current assets 508,548 497,304 Property and equipment, net 6,308 5,530 Deferred tax assets, non-current 10,481 10,914 Intangible assets, net 17,291 18,703 Operating lease right-of-use assets, net 10,775 9,659 Goodwill 26,601 26,601 Other non-current assets 4,634 4,569 Total assets $ 584,638 $ 573,280 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 20,644 21,124 Accrued and other current liabilities 44,897 48,126 Operating lease liabilities, current 2,992 2,911 Income taxes payable 700 962 Deferred revenue, current 770 844 Total current liabilities 70,003 73,967 Operating lease liabilities, non-current 8,475 7,525 Other long-term liabilities 14,866 16,812 Total liabilities 93,344 98,304 Commitments and contingencies (Note 13) Shareholders' equity: Preference shares, $ 0.00045 par value per share, 20,000,000 shares authorized and no shares issued and outstanding at April 30, 2021 and January 31, 2021, respectively — — Ordinary shares, $ 0.00045 par value per share, 200,000,000 shares authorized at April 30, 2021 and January 31, 2021, respectively; 36,273,343 shares issued and outstanding at April 30, 2021; 35,547,440 shares issued and outstanding at January 31, 2021 16 16 Additional paid-in capital 375,021 347,458 Accumulated other comprehensive income 792 1,219 Retained earnings 115,465 126,283 Total shareholders’ equity 491,294 474,976 Total liabilities and shareholders' equity $ 584,638 $ 573,280 See accompanying notes to condensed consolidated financial statements. 3 AMBARELLA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) (unaudited) Three Months Ended April 30, 2021 2020 Revenue $ 70,133 $ 54,645 Cost of revenue 26,368 22,625 Gross profit 43,765 32,020 Operating expenses: Research and development 37,874 34,200 Selling, general and administrative 16,027 13,435 Total operating expenses 53,901 47,635 Loss from operations ( 10,136 ) ( 15,615 ) Other income, net 593 1,278 Loss before income taxes ( 9,543 ) ( 14,337 ) Provision for income taxes 1,275 1,126 Net loss $ ( 10,818 ) $ ( 15,463 ) Net loss per share attributable to ordinary shareholders: Basic $ ( 0.30 ) $ ( 0.45 ) Diluted $ ( 0.30 ) $ ( 0.45 ) Weighted-average shares used to compute net loss per share attributable to ordinary shareholders: Basic 35,940,304 34,080,330 Diluted 35,940,304 34,080,330 See accompanying notes to condensed consolidated financial statements. 4 AMBARELLA, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited, in thousands) Three Months Ended April 30, 2021 2020 Net loss $ ( 10,818 ) $ ( 15,463 ) Other comprehensive loss, net of tax: Net unrealized losses on investments ( 427 ) ( 363 ) Other comprehensive loss, net of tax ( 427 ) ( 363 ) Comprehensive loss $ ( 11,245 ) $ ( 15,826 ) See accompanying notes to condensed consolidated financial statements. 5 AMBARELLA, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands, except share data) (unaudited) Accumulated Outstanding Additional Other Ordinary Shares Paid-in Comprehensive Retained Shares Amount Capital Income Earnings Total Balance--January 31, 2021 35,547,440 $ 16 $ 347,458 $ 1,219 $ 126,283 $ 474,976 Issuance of shares through employee equity incentive plan 643,120 — 6,741 — — 6,741 Issuance of shares through employee stock purchase plan 82,783 — 3,694 — — 3,694 Stock-based compensation expense related to stock awards granted to employees and consultants — — 17,128 — — 17,128 Net unrealized losses on investments - net of tax — — — ( 427 ) — ( 427 ) Net loss — — — — ( 10,818 ) ( 10,818 ) Balance--April 30, 2021 36,273,343 $ 16 $ 375,021 $ 792 $ 115,465 $ 491,294 Accumulated Outstanding Additional Other Ordinary Shares Paid-in Comprehensive Retained Shares Amount Capital Income Earnings Total Balance--January 31, 2020 33,805,609 $ 15 $ 261,220 $ 768 $ 186,069 $ 448,072 Issuance of shares through employee equity incentive plan 478,643 — 6,463 — — 6,463 Issuance of shares through employee stock purchase plan 83,564 — 2,660 — — 2,660 Stock repurchase ( 25,719 ) — ( 1,000 ) — — ( 1,000 ) Stock-based compensation expense related to stock awards granted to employees and consultants — — 15,214 — — 15,214 Net unrealized losses on investments - net of tax — — — ( 363 ) — ( 363 ) Net loss — — — — ( 15,463 ) ( 15,463 ) Balance--April 30, 2020 34,342,097 $ 15 $ 284,557 $ 405 $ 170,606 $ 455,583 See accompanying notes to condensed consolidated financial statements. 6 AMBARELLA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Three Months Ended April 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 10,818 ) $ ( 15,463 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,883 2,872 Amortization (accretion) of premium (discount) on marketable debt securities, net 417 10 Stock-based compensation 18,842 16,036 Deferred income taxes 433 457 Other non-cash items, net ( 190 ) ( 38 ) Changes in operating assets and liabilities: Accounts receivable ( 9,554 ) ( 2,197 ) Inventories ( 7,039 ) 1,014 Prepaid expenses and other current assets 161 193 Other non-current assets ( 65 ) 351 Accounts payable ( 480 ) 5,679 Accrued and other current liabilities 1,969 ( 1,343 ) Income taxes payable ( 262 ) 58 Deferred revenue ( 74 ) 101 Operating lease liabilities ( 856 ) ( 689 ) Other long-term liabilities 86 598 Net cash provided by (used in) operating activities ( 4,547 ) 7,639 Cash flows from investing activities: Purchase of investments ( 57,117 ) ( 49,077 ) Sales of investments 18,609 13,601 Maturities of investments 29,232 33,740 Purchase of tangible and intangible assets ( 1,954 ) ( 428 ) Net cash used in investing activities ( 11,230 ) ( 2,164 ) Cash flows from financing activities: Stock repurchase — ( 1,000 ) Proceeds from exercise of stock options and employee stock purchase plan 3,893 1,912 Payment for intangible assets ( 1,881 ) ( 1,205 ) Net cash provided by (used in) financing activities 2,012 ( 293 ) Net increase (decrease) in cash, cash equivalents and restricted cash ( 13,765 ) 5,182 Cash, cash equivalents and restricted cash at beginning of period 241,284 231,412 Cash, cash equivalents and restricted cash at end of period $ 227,519 $ 236,594 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 1,013 $ 370 Supplemental disclosure of noncash investing and financing activities: Unpaid liabilities related to tangible and intangible assets additions $ 304 $ 67 See accompanying notes to condensed consolidated financial statements. 7 AMBARELLA, INC. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization and Summary of Significant Accounting Policies Organization Ambarella, Inc. (the “Company”) was incorporated in the Cayman Islands on January 15, 2004. The Company is a leading developer of low-power semiconductor solutions offering high-definition (HD) and Ultra HD compression, image processing, and deep neural network processing. The Company combines its processor design capabilities with its expertise in video and image processing, algorithms and software to provide a technology platform that is designed to be easily scalable across multiple applications and enable rapid and efficient product development. The Company’s system-on-a-chip, or SoC, designs fully integrate high-definition video processing, image processing, artificial intelligence (AI) computer vision algorithms, audio processing and system functions onto a single chip, delivering exceptional video and image quality, differentiated functionality and low power consumption. The Company is currently addressing a broad range of human and computer vision applications, including professional and consumer security cameras, automotive cameras such as advanced driver assistance systems (ADAS), electronic mirrors, drive recorders, driver/cabin monitoring systems, autonomous driving, and industrial and robotic applications. The Company sells its solutions to leading original design manufacturers, or ODMs, and original equipment manufacturers, or OEMs, globally. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and notes normally provided in audited financial statements. The accounting policies are described in the “Notes to Consolidated Financial Statements” in the Annual Report on Form 10-K for the 2021 fiscal year filed with the SEC on March 31, 2021 (the “Form 10-K”) and updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”). In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair statement have been included. The results of operations for any interim period are not necessarily indicative of, nor comparable to, the results of operations for any other interim period or for a full fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Form 10-K. Basis of Consolidation The Company’s fiscal year ends on January 31. The condensed consolidated financial statements of the Company and its subsidiaries have been prepared in conformity with U.S. GAAP. All intercompany transactions and balances have been eliminated upon consolidation. Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reported periods. Actual results could differ from those estimates. On an ongoing basis, management evaluates its estimates and assumptions, including those related to (i) write down of excess and obsolete inventories; (ii) the estimated useful lives of long-lived assets; (iii) the valuation of stock-based compensation awards and financial instruments; (iv) the probability of performance objectives achievement; and (v) the realization of tax assets and estimates of tax liabilities, including reserves for uncertain tax positions. These estimates and assumptions are based on historical experience and on various other factors which the Company believes to be reasonable under the circumstances. The Company may engage third-party valuation specialists to assist with estimates related to the valuation of financial instruments, assets and stock awards associated with various contractual arrangements. Such estimates often require the selection of appropriate valuation methodologies and significant judgment. Actual results could differ from these estimates under different assumptions or circumstances and such differences could be material. 8 The Company also assessed the impacts of COVID-19 on the above accounting matters as of April 30, 2021 and through the date of this report. While it is difficult to quantify the impact of COVID-19 , the future magnitude and duration of COVID-19, as well as other associated factors, could r esult in material negative impacts to the Company’s condensed consolidated financial statements in future reporting periods . Concentration of Risk The Company’s products are manufactured, assembled and tested by third-party contractors located primarily in Asia. The Company does not have long-term agreements with these contractors. A significant disruption in the operations of one or more of these contractors would impact the production of the Company’s products which could have a material adverse effect on its business, financial condition and results of operations. A substantial portion of the Company’s revenue is derived from sales through one of its distributors, WT Microelectronics Co., Ltd., formerly Wintech Microelectronics Co., Ltd., or Wintech, which serves as its non-exclusive sales representative in Asia other than Japan, and directly to one ODM customer, Chicony Electronics Co., Ltd., or Chicony. Termination of the relationships with these customers could result in a temporary or permanent loss of revenue. Furthermore, any credit issues from these customers could impair their abilities to make timely payment to the Company. See Note 14 for additional information regarding revenue and credit concentration with these customers. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketable debt securities and accounts receivable. The Company maintains its cash primarily in checking accounts with reputable financial institutions. Cash deposits held with these financial institutions may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on deposits of its cash. In order to limit the exposure of each investment, the cash equivalents and marketable debt securities consist primarily of money market funds, asset-backed securities, commercial paper, U.S. government securities and debt securities of corporations which management assesses to be highly liquid. The Company does not hold or issue financial instruments for trading purposes. The Company performs ongoing credit evaluation of its customers and adjusts credit limits based upon payment history and customers’ credit worthiness. The Company regularly monitors collections and payments from its customers. Financial Instruments The Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments in fiscal year 2021. As a result, the Company recognizes credit losses based on a forward-looking current expected credit losses (CECL) model, including accounts receivable. The Company’s accounts receivable are recorded at invoiced amount less an allowance for any potentially uncollectible amounts. Accordingly, the Company makes estimates of expected credit losses for the allowance for doubtful accounts based upon its assessment of various factors, including historical collection experience, the age of the accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. The Company considers all highly liquid debt security investments with original maturities of less than three months at the time of purchase to be cash equivalents. Debt security investments that are highly liquid with original maturities at the time of purchase greater than three months are considered marketable debt securities. The Company classifies these investments as “available-for-sale” (AFS) securities. The Company estimates the expected losses whenever a security’s fair value is below its amortized cost basis. The expected loss is computed at an individual security level using the discounted cash flow method with the effective interest rate on the purchase date. In the determination of credit-related losses, the Company excludes securities with zero loss expectation such as assets backed by government agencies. There are various factors considered in its assessment of credit-related losses, including the extent to which the fair value is less than the amortized cost basis, adverse conditions related to an industry or an underlying loan obligator, the payment structure of the security, changes to the rating of the security and other factors that may affect the security credit. The credit-related portion of the loss is recognized in Other income, net in the condensed consolidated statements of operations but is limited to the difference between the fair value and the amortized cost basis of the security, adjusted for accrued interest. The non-credit-related portion of the loss is recognized in Accumulated other comprehensive income in the condensed consolidated balance sheets. The credit-related losses from the financial instruments were not material for the three months ended April 30, 2021 and 2020, respectively, and the associated allowance amounts were not material as of April 30, 2021 and January 31, 2021, respectively. 9 Restricted Cash Amounts included in restricted cash represent those required to be set aside to secure certain transactions in a foreign entity. As of April 30, 2021 and January 31, 2021, restricted cash was immaterial, respectively. The following table presents cash, cash equivalents and restricted cash reported on the condensed consolidated balance sheets, and the sums are presented on the condensed consolidated statements of cash flows: As of April 30, 2021 January 31, 2021 April 30, 2020 January 31, 2020 (in thousands) Cash and cash equivalents $ 227,509 $ 241,274 $ 236,585 $ 231,403 Restricted cash 10 10 9 9 Total as presented in the condensed consolidated statements of cash flows $ 227,519 $ 241,284 $ 236,594 $ 231,412 Inventories The Company records inventories at the lower of cost or net realizable value. The cost includes materials and other production costs and is computed using standard cost on a first-in, first-out basis. Inventory reserves are recorded for estimated obsolescence or unmarketable inventories based on forecast of future demand and market conditions. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. Once inventory is written down, a new accounting cost basis is established and, accordingly, any associated reserve is not released until the inventory is sold or scrapped. There were no material inventory losses recognized for the three months ended April 30, 2021 and 2020, respectively. Software Licenses The Company accounts for a noncancelable on premise internal-use software license as the acquisition of an intangible asset and the incurrence of a liability to the extent that all or a portion of the software licensing fees are not paid on or before the license acquisition date. The intangible asset and related liability are recorded at net present value and interest expense is recorded over the payment term. The Company expenses the cost of purchased software that is to be sold, leased or otherwise marketed as part of a product until the technological feasibility of the product has been established or where the software has an alternative future use. Once the technological feasibility of the product, to be externally marketed, has been established or where the software has an alternative future use, the Company capitalizes the cost of purchased software until the associated product is available for general release to customers, at which point the capitalized cost is amortized on a product by product basis over the remaining estimated economic life of the product. Leases The Company adopted Accounting Standards Codification (“ASC”) Topic 842, Leases in fiscal year 2020. As a result, the Company recognizes leases as operating lease right-of-use (“ROU”) assets and corresponding lease liabilities at the lease commencement date based on the present value of future lease payments, while recognizing lease expenses under straight-line method through the lease term. The Company also elected the practical expedient that does not recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases. The Company does not combine lease components with non-lease components, and as a result, the non-lease components are accounted for separately. In determining the present value of lease payments, the Company uses the implicit interest rate if readily determinable. When the implicit rate is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The Company's leases mainly include its worldwide office facilities which are all classified as operating leases. Certain leases include renewal options that are under the Company's discretion. The renewal options are included in the ROU and liability calculation if it is reasonably certain that the Company will exercise the option. The Company's finance leases were immaterial as of April 30, 2021 and January 31, 2021, respectively. Revenue Recognition In accordance with ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue when control of its goods and services is transferred to its customers. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied. 10 The sale of semiconductor products accounts for the substantial majority of the Company’s consolidated revenue. Sales agreements with customers are renewable periodically and contain terms and conditions with respect to payment, delivery, warranty, supply and other rights. The Company considers an accepted customer purchase order, governed by sales agreement, to be the contract with the customer. For each contract, the Company considers the promise to transfer tangible products to be the identified performance obligation. Product sales contracts may include volume-based tiered pricing or rebates that are fulfilled in cash or product. In determining the transaction price, the Company accounts for the right of returns, cash rebates, commissions and other pricing adjustments as variable consideration , estimates these amounts based on the expected amount to be provided to customers and reduces the revenue recognized. The Company estimates sales returns and rebates based on the Company’s historical patterns of return and pricing credits. As the Company’s standard payment terms are 30 days to 60 days, the contracts have no financing component. Under ASC 606, the Company estimates the total consideration to be received by using the expected value method for each contract, computes weighted average selling price for each unit shipped in cases where there is a material right due to the presence of volume-based tiered pricing, allocates the total consideration between the identified performance obligations, and recognizes revenue when control of its goods and services is transferred to its customers. The Company considers product control to be transferred at a point in time upon shipment or delivery because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risk and rewards of ownership of the asset . The Company also enters into fixed-price engineering service agreements with certain customers. These agreements may include multiple performance obligations, such as software development services, licensing of intellectual property and post-contract customer support, or PCS. These multiple performance obligations are highly interdependent, highly interrelated, are typically not sold separately and do not have standalone selling prices. They are all inputs to generate one combined output which is incorporating the Company’s SoC into the customer’s product. Accordingly, the Company determines that they are not separately identifiable and shall be treated as a single performance obligation. Customers usually pay based on milestones achieved. Because payments received do not correspond directly with the value of the Company’s performance to date, for fixed-price engineering services arrangements, revenue is recognized using the time-based straight line method, which best depicts the Company’s performance toward complete satisfaction of the performance obligation based on the nature of such professional services. Revenues from engineering service agreements were not material for the three months ended April 30, 2021 and 2020, respectively. Timing of revenue recognition may differ from the timing of invoicing to the Company’s customers. The Company records contract assets when revenue is recognized prior to invoicing. The Company’s contract assets are primarily related to satisfied but unbilled performance obligations associated with its engineering service agreements at the reporting date. As of April 30, 2021 and January 31, 2021, the contract assets for these unbilled receivables were not material. The Company’s contract liabilities consist of deferred revenue. The deferred revenue is primarily related to the portion of a transaction price that exceeds the weighted average selling price for products sold to date under tiered-pricing contracts which contain material rights. This deferred revenue is expected to be recognized over the course of the contract when products are delivered for future pricing below the weighted average selling price of the contract. For the three months ended April 30, 2021 and 2020, the Company did not recognize any material revenue adjustment, respectively, related to performance obligations satisfied in prior periods released from this deferred revenue. As of April 30, 2021 and January 31, 2021, the respective deferred revenues were not material. Additionally, the transaction price allocated to unsatisfied, or partially unsatisfied, purchase orders for contracts that are greater than a year was not material as of April 30, 2021 and January 31, 2021, respectively. The Company also elects not to disclose the value of unsatisfied or partially unsatisfied performance obligations due to an original expected contract duration of one year or less and elects to exclude amounts collected from customers for all sales taxes from the transaction price . Cost of Revenue Cost of revenue includes cost of materials, cost associated with packaging and assembly, testing and shipping, cost of personnel, stock-based compensation, logistics and quality assurance, warranty cost, royalty expense, write-downs of inventories and allocation of overhead. Research and Development Research and development costs are expensed as incurred and consist primarily of personnel costs, product development costs, which include engineering services, development software and hardware tools, license fees, costs of fabrication of masks for prototype products, other development materials costs, depreciation of equipment and tools and allocation of facility costs, net of any research and development grants. As of April 30, 2021, there was approximately $ 1.4 million of grants recorded in prepaid expenses and other current assets and approximately $ 1.6 million of grants recorded in other non-current assets in the condensed consolidated balance sheets. 11 Income Taxes The Company records income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. In estimating future tax consequences, generally all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. The Company applies authoritative guidance for the accounting for uncertainty in income taxes. The guidance requires that tax effects of a position be recognized only if it is “more likely than not” to be sustained based solely on its technical merits as of the reporting date. Upon estimating its tax positions and tax benefits, the Company considers and evaluates numerous factors, which may require periodic adjustments and which may not reflect the final tax liabilities. The Company adjusts its financial statements to reflect only those tax positions that are more likely than not to be sustained under examination. As part of the process of preparing condensed consolidated financial statements, the Company is required to estimate its taxes in each of the jurisdictions in which it operates. The Company estimates actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as accruals and allowances not currently deductible for tax purposes. These differences result in deferred tax assets, which are included in the condensed consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the condensed consolidated statements of operations become deductible expenses under applicable income tax laws, or loss or credit carryforwards are utilized. In assessing whether deferred tax assets may be realized, the Company considers whether it is more likely than not that some portion or all of deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The Company makes estimates and judgments about its future taxable income based on assumptions that are consistent with its plans and estimates. Should the actual amounts differ from estimates, the amount of valuation allowance could be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the condensed consolidated income statement for the periods in which the adjustment is determined to be required. Net Income (Loss) Per Ordinary Share Basic earnings (losses) per share is computed by dividing net income (loss) available to ordinary shareholders by the weighted-average number of ordinary shares outstanding during the period. Diluted earnings (losses) per share is computed by dividing net income (loss) available to ordinary shareholders by the weighted-average number of ordinary shares outstanding during the period increased to include the number of additional ordinary shares that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased under the Company’s employee stock purchase plan and unvested restricted stock units. The dilutive effect of potentially dilutive securities is reflected in diluted earnings (losses) per share by application of the treasury stock method. Comprehensive Income (Loss) Comprehensive income (loss) includes unrealized gains or losses, net from available-for-sale securities that are excluded from net income (loss). Recent Accounting Pronouncements None. 12 2. Financial Instruments and Fair Value The Company invests a portion of its cash in debt securities that are denominated in United States dollars. The investment portfolio consists of money market funds, asset-backed securities, commercial paper, U.S. government securities, and debt securities of corporations. All of the investments are classified as available-for-sale securities and reported at fair value in the condensed consolidated balance sheets as follows: As of April 30, 2021 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Money market funds $ 2,342 $ — $ — $ 2,342 Commercial paper 64,978 — — 64,978 Corporate bonds 99,950 665 ( 31 ) 100,584 Asset-backed securities 17,000 105 ( 7 ) 17,098 U.S. government securities 29,799 62 ( 2 ) 29,859 Total cash equivalents and marketable debt securities $ 214,069 $ 832 $ ( 40 ) $ 214,861 As of January 31, 2021 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Money market funds $ 171 $ — $ — $ 171 Commercial paper 66,181 — — 66,181 Corporate bonds 102,108 980 ( 7 ) 103,081 Asset-backed securities 15,740 164 — 15,904 U.S. government securities 29,383 82 — 29,465 Total cash equivalents and marketable debt securities $ 213,583 $ 1,226 $ ( 7 ) $ 214,802 As of April 30, 2021, there were no debt securities with unrealized losses for more than twelve months. As of April 30, 2021 January 31, 2021 (in thousands) Included in cash equivalents $ 6,841 $ 15,368 Included in marketable debt securities 208,020 199,434 Total cash equivalents and marketable debt securities $ 214,861 $ 214,802 The contractual maturities of the investments at April 30, 2021 and January 31, 2021 were as follows: As of April 30, 2021 January 31, 2021 (in thousands) Due within one year $ 134,814 $ 135,899 Due within one to three years 80,047 78,903 Total cash equivalents and marketable debt securities $ 214,861 $ 214,802 The unrealized gains and losses on the available-for-sale securities were primarily caused by fluctuations in market value and interest rates as a result of the economic environment. In accordance with ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the Company estimates the expected losses at an individual security level whenever a security’s fair value is below its amortized cost basis using the discounted cash flow method. The credit-related portion of the loss is recognized in other income, net in the condensed consolidated statements of operations but is limited to the difference between the fair value and the amortized cost basis of the security, adjusted for accrued interest. The non-credit-related portion of the loss is recognized in accumulated other comprehensive income in the condensed consolidated balance sheets. The credit-related losses were not material for the three months ended April 30, 2021, and 2020, respectively. The following fair value hierarchy is applied for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. 13 Level 2— Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments . Level 3—Unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation. The Company measures the fair value of money market funds using quoted prices in active markets for identical assets and classifies them within Level 1. The fair value of the Company’s investments in other debt securities are obtained based on quoted prices for similar assets in active markets and are classified within Level 2. The following tables present the fair value of the financial instruments measured on a recurring basis as of April 30, 2021 and January 31, 2021, respectively: As of April 30, 2021 Total Level 1 Level 2 Level 3 (in thousands) Money market funds $ 2,342 $ 2,342 $ — $ — Commercial paper 64,978 — 64,978 — Corporate bonds 100,584 — 100,584 — Asset-backed securities 17,098 — 17,098 — U.S. government securities 29,859 — 29,859 — Total cash equivalents and marketable debt securities $ 214,861 $ 2,342 $ 212,519 $ — As of January 31, 2021 Total Level 1 Level 2 Level 3 (in thousands) Money market funds $ 171 $ 171 $ — $ — Commercial paper 66,181 — 66,181 — Corporate bonds 103,081 — 103,081 — Asset-backed securities 15,904 — 15,904 — U.S. government securities 29,465 — 29,465 — Total cash equivalents and marketable debt securities $ 214,802 $ 171 $ 214,631 $ — 3. Inventories Inventories at April 30, 2021 and January 31, 2021 consisted of the following: As of April 30, 2021 January 31, 2021 (in thousands) Work-in-progress $ 24,497 $ 18,219 Finished goods 8,623 7,862 Total $ 33,120 $ 26,081 14 4. Property and Equipment, Net Depreciation expense was approximately $ 0.6 million and $ 0.7 million for the three months ended April 30, 2021 and 2020, respectively. Property and equipment at April 30, 2021 and January 31, 2021 consisted of the following: As of April 30, 2021 January 31, 2021 (in thousands) Computer equipment and software $ 12,287 $ 11,525 Machinery and equipment 7,033 6,946 Furniture and fixtures 969 969 Leasehold improvements 2,269 2,237 Construction in progress 804 331 23,362 22,008 Less: accumulated depreciation and amortization ( 17,054 ) ( 16,478 ) Total property and equipment, net $ 6,308 $ 5,530 5. Intangible Assets, Net The intangible assets primarily consist of $ 4.1 million of in-process research and development (“IPR&D”) from the acquisition of VisLab S.r.l., or VisLab, in June 2015 and $ 13.2 million of software licenses, net of amortization expense. Acquired IPR&D is capitalized at fair value and the amortization commences upon completion of the underlying projects. Once research and development efforts are completed, the corresponding amount of IPR&D is reclassified as an amortizable purchased intangible asset and is amortized over its estimated useful life. As of April 30, 2021, there was no IPR&D amortized. The Company will determine the project incorporating the VisLab IPR&D to be completed when a related chip begins mass production to address the level 3 and above advanced driving assistance systems markets. The Company enters into certain software license agreements with third parties from time-to-time. The software licenses consist of noncancelable on premise internal-use software and software with alternative use that is to be sold, leased or otherwise marketed as part of a product. The licenses have been capitalized as intangible assets, and the corresponding future payments have been recorded as liabilities at net present value. As of April 30, 2021, $ 5.6 million was recorded in accrued and other current liabilities and $ 4.2 million was recorded in other long-term liabilities in the condensed consolidated balance sheets. The carrying amounts of intangible assets as of April 30, 2021 and January 31, 2021 were as follows : As of April 30, 2021 As of January 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (in thousands) In-process research and development $ 4,100 $ — $ 4,100 $ 4,100 $ — $ 4,100 Software licenses 21,125 ( 7,934 ) 13,191 21,043 ( 6,440 ) 14,603 Total acquired intangible assets $ 25,225 $ ( 7,934 ) $ 17,291 $ 25,143 $ ( 6,440 ) $ 18,703 The amortization expense related to the software licenses was approximately $ 1.5 million and $ 1.5 million for the three months ended April 30, 2021 and 2020, respectively. The expected future amortization expense related to these software licenses as of April 30, 2021 is as follows: As of April 30, 2021 Fiscal Year (in thousands) 2022 (9 months remaining) $ 4,409 2023 6,298 2024 2,484 2025 — 2026 — Thereafter — Total future amortization expenses: $ 13,191 15 IPR&D is required to be tested for impairment at least annually in the fourth fiscal quarter or sooner whenever events or changes in circumstances indicate that the assets may be impaired. There were no intangible asset impairments for the three months ended April 30, 2021 and 2020, respectively. 6. Accrued and Other Current Liabilities Accrued and other current liabilities at April 30, 2021 and January 31, 2021 consisted of the following: As of April 30, 2021 January 31, 2021 (in thousands) Accrued employee compensation $ 13,049 $ 18,105 Accrued rebates 621 391 Accrued product development costs 22,354 21,157 Software license liabilities, current 5,596 5,582 Other accrued liabilities 3,277 2,891 Total accrued and other current liabilities $ 44,897 $ 48,126 The decrease in employee compensation liabilities was primarily due to $ 6.7 million of annual bonus paid in March 2021, of which $ 2.1 million was paid in cash and $ 4.6 million was settled with restricted stock units. 7. Leases The Company has entered into various operating leases for its worldwide office facilities. During the three months ended April 30, 2021, the Company extended its Shanghai office lease for an additional three years beginning December 1, 2021 to November 30, 2024 . The Company accounted for this extension as a lease modification and recorded an increase to the operating lease right-of-use assets and corresponding operating lease liabilities of approximately $ 1.7 million, respectively, in the condensed consolidated balance sheets. The Company also signed a separate lease for additional space for its Shanghai office for a period of 40 months starting from August 1, 2021 through November 30, 2024 and will record an operating lease right-of-use asset and corresponding operating lease liability in the condensed consolidated balance sheets upon commencement on August 1, 2021. T he total estimated future undiscounted cash payments for this additional lease are approximately $ 1.7 million. The operating lease expense was approximately $ 0.8 million and $ 0.7 million for the three months ended April 30, 2021 and 2020, respectively. The Company's short-term leases and finance leases were not material as of April 30, 2021 and January 31, 2021, respectively . Supplemental cash flow information related to leases is as follows: Three Months Ended April 30, 2021 (in thousands) Cash paid for operating leases included in operating cash flows $ 856 Supplemental non-cash information related to lease liabilities arising from obtaining right-of-use assets $ 89 Leased assets obtained in exchange for operating lease liabilities arising from lease modifications $ 1,687 16 As of April 30, 2021, the weighted average remaining lease term is 4.20 years, and the weighted average discount rate is 3.82 percent. Future minimum lease payments for the lease liabilities are as follows : As of April 30, 2021 Fiscal Year (in thousands) 2022 (9 months remaining) $ 2,559 2023 2,918 2024 2,698 2025 2,625 2026 1,180 Thereafter 278 Total future annual minimum lease payments 12,258 Less: interest ( 791 ) Total lease liabilities $ 11,467 8. Other Long-Term Liabilities Other long-term liabilities at April 30, 2021 and January 31, 2021 consisted of the following: As of April 30, 2021 January 31, 2021 (in thousands) Unrecognized tax benefits, including interest $ 9,052 $ 8,966 Deferred tax liabilities, non-current 1,287 1,288 Software license liabilities, non-current 4,226 6,259 Other long-term liabilities 301 299 Total other long-term liabilities $ 14,866 $ 16,812 9. Capital Stock Preference shares After completion of the Company’s initial public offering in 2012, a total of 20,000,000 preference shares, with a $ 0.00045 par value per share, were authorized. There were no preference shares issued and outstanding as of April 30, 2021 and January 31, 2021, respectively. Ordinary shares As of April 30, 2021 and January 31, 2021, a total of 200,000,000 ordinary shares were authorized. For the three months ended April 30, 2021, the Company added 1,599,634 ordinary shares to the ordinary shares reserved for issuance, pursuant to an “evergreen” provision contained in the 2012 Equity Incentive Plan, or EIP. Pursuant to such provision, for each fiscal year, the number of ordinary shares reserved for issuance under the EIP is automatically increased by a number equal to the lesser of (i) 3,500,000 ordinary shares, (ii) four and one half percent ( 4.5 %) of the aggregate number of ordinary shares outstanding on January 31st of the preceding fiscal year, or (iii) a lesser number of shares that may be determined by the Company’s Board of Directors. For the three months ended April 30, 2021, the Company added 444,343 ordinary shares to the ordinary shares reserved for issuance, pursuant to an “evergreen” provision contained in the Amended and Restated 2012 Employee Stock Purchase Plan, or ESPP. Pursuant to such provision, for each fiscal year, the number of ordinary shares reserved for issuance under the ESPP is automatically increased by a number equal to the lesser of (i) 1,500,000 ordinary shares, (ii) one and one quarter percent ( 1.25 %) of the aggregate number of ordinary shares outstanding on such date, or (iii) an amount determined by the Company’s Board of Directors or a duly authorized committee of the Board of Directors. 17 As of April 30, 2021 and January 31, 2021, the following ordinary shares were reserved for future issuance under the EIP and ESPP: As of April 30, 2021 January 31, 2021 Shares reserved for options, restricted stock and restricted stock units under EIP 6,938,255 5,981,741 Shares reserved for ESPP 2,660,703 2,299,143 Shares repurchased On May 29, 2019 , the Company’s Board of Directors authorized a program to repurchase up to $ 50.0 million of the Company’s ordinary shares through June 30, 2020 . On March 16, 2020, the Company repurchased a total of 25,719 shares for approximately $ 1.0 million in cash. On May 29, 2020, the Board approved an extension of this program for an additional twelve months ending June 30, 2021 . There were no ordinary shares repurchased in the three months ended April 30, 2021. Repurchases may be made from time-to-time through open market purchases, 10b5-1 plans or privately negotiated transactions subject to market conditions, applicable legal requirements and other relevant factors. The repurchase program does not obligate the Company to acquire any particular amount of ordinary shares, and it may be suspended at any time at the Company’s discretion. The repurchase program is funded using the Company’s working capital and any repurchased shares are recorded as authorized but unissued shares. As of April 30, 2021, there was approximately $ 49.0 million available for repurchases under the repurchase program through June 30, 2021. 10. Stock-based Compensation The following table presents the classification of stock-based compensation for the periods indicated: Three Months Ended April 30, 2021 2020 (in thousands) Stock-based compensation: Cost of revenue $ 323 $ 297 Research and development 11,194 9,896 Selling, general and administrative 7,325 5,843 Total stock-based compensation $ 18,842 $ 16,036 During the three months ended April 30, 2021, approximately $ 1.7 million of stock-based compensation expense was accrued in accrued and other current liabilities in the condensed consolidated balance sheets. As of April 30, 2021, total unrecognized compensation cost related to unvested stock options was $ 3.3 million and is expected to be recognized over a weighted-average period of 2.41 years. Total unrecognized compensation cost related to unvested restricted stock units was $ 139.2 million and is expected to be recognized over a weighted-average period of 2.31 years. The following table sets forth the weighted-average assumptions used to estimate the fair value of stock options and employee stock purchase plan awards for the periods indicated: Three Months Ended April 30, 2021 2020 Stock Options: Volatility 51 % 50 % Risk-free interest rate 0.99 % 0.74 % Expected term (years) 5.3 5.89 Dividend yield 0 % 0 % Employee stock purchase plan awards: Volatility 61 % 61 % Risk-free interest rate 0.06 % 0.29 % Expected term (years) 0.5 0.5 Dividend yield 0 % 0 % The following table summarizes stock option activities for the period indicated: 18 Option Outstanding Weighted- Total Intrinsic Average Weighted- Value Of Remaining Aggregate Weighted- Average Options Contractual Intrinsic Average Grant-date Exercised Term Value Shares Exercise Price Fair Value (in thousands) (in years) (in thousands) Outstanding at January 31, 2021 719,143 $ 38.33 Granted 13,100 111.51 $ 51.10 Exercised ( 77,403 ) 27.77 $ 6,363 Forfeited ( 3,131 ) 55.43 Expired — — Outstanding at April 30, 2021 651,709 40.98 4.46 $ 37,040 Exercisable at April 30, 2021 531,761 $ 36.80 3.56 $ 32,298 The intrinsic value of options outstanding and exercisable is calculated based on the difference between the fair market value of the Company’s ordinary shares on the reporting date and the exercise price. The closing price of the Company’s ordinary shares on April 30, 2021 was $ 97.49 , as reported by The NASDAQ Global Market. The intrinsic value of exercised options is calculated based on the difference between the fair market value of the Company’s ordinary shares on the exercise date and the exercise price. The following table summarizes the restricted stock units activities for the period indicated: Weighted- Average Grant-Date Shares Fair Value Unvested at January 31, 2021 2,871,801 $ 51.73 Granted 325,866 107.62 Vested ( 565,717 ) 51.63 Forfeited ( 11,974 ) 60.25 Unvested at April 30, 2021 2,619,976 $ 58.67 As of April 30, 2021, the aggregate intrinsic value of unvested restricted stock units was $ 255.4 million. 11. Net Loss Per Ordinary Share The following table sets forth the computation of basic and diluted loss per ordinary share for the periods indicated: Three Months Ended April 30, 2021 2020 (in thousands, except share and per share data) Numerator: Net loss $ ( 10,818 ) $ ( 15,463 ) Denominator: Weighted-average ordinary shares - basic 35,940,304 34,080,330 Weighted-average ordinary shares - diluted 35,940,304 34,080,330 Net loss per ordinary share: Basic $ ( 0.30 ) $ ( 0.45 ) Diluted $ ( 0.30 ) $ ( 0.45 ) 19 The following weighted-average potentially dilutive securities were excluded from the computation of diluted loss per ordinary share as their effect would have been antidilutive: Three Months Ended April 30, 2021 2020 Options to purchase ordinary shares 427,861 771,769 Restricted stock units 1,786,252 1,441,462 Employee stock purchase plan 22,870 31,092 2,236,983 2,244,323 12. Income Taxes The following table provides details of income taxes for the periods indicated: Three Months Ended April 30, 2021 2020 (in thousands) Loss before income taxes $ ( 9,543 ) $ ( 14,337 ) Provision for income taxes 1,275 1,126 Effective tax rate ( 13.4 )% ( 7.9 )% The Company recorded an income tax provision of $ 1.3 million and $ 1.1 million for the three months ended April 30, 2021 and 2020, respectively. The increase in income tax expense was primarily due to a decrease in the proportion of profits generated in lower tax jurisdictions, partially offset by a $ 3.4 million increase in the U.S. federal research tax credit as well as an increase in tax benefits from excess stock-based compensation deductions. The Company files federal and state income tax returns in the United States and in various foreign jurisdictions. The Internal Revenue Service is currently examining the Company’s U.S. federal income tax return for the fiscal year ended January 31, 2017. The tax years 2013 to 2020 remain open to examination by U.S. federal tax authorities. The tax years 2009 to 2020 remain open to examination by U.S. state tax authorities. The tax years 2015 to 2020 remain open to examination by foreign tax authorities. Fiscal years outside of the normal statute of limitations remain open to audit by tax authorities due to tax attributes generated in those earlier years, which have been carried forward and may be audited in subsequent years when utilized. The Company regularly assesses the likelihood of adverse outcomes resulting from potential tax examinations to determine the adequacy of its provision for income taxes. These assessments can require considerable estimates and judgments. As of April 30, 2021, the gross amount of unrecognized tax benefits was approximately $ 27.8 million. If the estimates of income tax liabilities prove to be less than the ultimate assessment, then a further charge to expense could be required. If events occur, and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities could result in tax benefits being recognized in the period in which the Company determines the liabilities are no longer necessary. The Company does not anticipate significant changes to its uncertain tax positions during the next twelve months. 13. Commitments and Contingencies Contract Manufacturer Commitments The Company’s components and products are procured and built by independent contract manufacturers based on sales forecasts. These forecasts include estimates of future demand, historical trends, analysis of sales and marketing activities, and adjustment of overall market conditions. The Company regularly issues purchase orders to independent contract manufacturers which are cancelable upon agreement between the Company and the third-party manufacturers. These purchase orders typically provide the Company with flexibility to cancel, reschedule or adjust requirements based upon business needs but the Company may incur certain costs depending on the production stage of the products. As of April 30, 2021 and January 31, 2021, total manufacturing purchase commitments were approximately $ 67.6 million and $ 48.2 million, respectively. The Company also reviews and assesses the need for any expected loss liabilities on quarterly basis for all products that it does not expect to sell for which it has committed purchases from suppliers. As of April 30, 2021, there was no material loss recognized in the condensed consolidated balance sheets from adverse purchase commitments. 20 Indemnification The Company, from time to time, in the normal course of business, indemnifies certain vendors with whom it enters into contractual relationships. The Company has agreed to hold the other party harmless against third-party claims in connection with the Company’s future products. The Company also indemnifies certain customers against third-party claims related to certain intellectual property and product liability matters. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim. The Company has no t made payments under these obligations, and no liabilities have been recorded for these obligations in the condensed consolidated balance sheets as of April 30, 2021 and January 31, 2021, respectively. 14. Segment Reporting The Company operates in one reportable segment related to the development and sales of low-power, high-definition (HD), Ultra HD video compression, image processing and computer vision solutions. The Chief Executive Officer of the Company has been identified as the Chief Operating Decision Maker (the “CODM”) and manages the Company’s operations as a whole. For the purpose of evaluating financial performance and allocating resources, the CODM reviews financial information presented on a consolidated basis accompanied by information by customer and geographic region. Geographic Revenue The following table sets forth the Company’s revenue by geographic region based on bill-to location for the periods indicated: Three Months Ended April 30, 2021 2020 (in thousands) Taiwan $ 44,587 $ 34,460 Asia Pacific 18,637 14,028 Europe 3,018 2,253 North America other than United States 2,690 2,673 United States 1,201 1,231 Total revenue $ 70,133 $ 54,645 As of April 30, 2021, substantially all of the Company’s property and equipment, net, was located in the United States, Asia Pacific region and Europe with approximate net amounts of $ 2.4 million, $ 2.4 million and $ 1.5 million, respectively. Major Customers The customers representing 10% or more of revenue and accounts receivable were Wintech and Chicony, which accounted for approximately 63 % and 16 % of total revenue for the three months ended April 30, 2021, respectively. For the three months ended April 30, 2020, the customers representing 10% or more of revenue and accounts receivable were Wintech and Chicony, which accounted for approximately 63 % and 15 % of total revenue, respectively. Accounts receivable with Wintech and Chicony were approximately $ 17.0 million and $ 11.3 million as of April 30, 2021, respectively. 15. Subsequent Events On May 29, 2019 , the Company’s Board of Directors authorized a program to repurchase up to $ 50.0 million of the Company’s ordinary shares through June 30, 2020 . On May 29, 2020, the Board approved an extension of this program for an additional twelve months ending June 30, 2021. On May 25, 2021, the Board extended the repurchase program for another 12 months through June 30, 2022 . The repurchase program does not obligate the Company to acquire any particular amount of ordinary shares, and it may be suspended at any time at the Company’s discretion. As of June 7, 2021, there was approximately $ 49.0 million available for repurchases under the repurchase program through June 30, 2022. 21