What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-09-08 compared with 2021-06-08 · 72 added, 62 removed, 232 unchanged (37% of the section changed)

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the potential for intellectual property disputes or other litigation;

the risks described under Item 1A of Part II — “Risk Factors,” and Item 2 of Part I — “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

the risks described elsewhere in this Quarterly Report on Form 10-Q and those discussed in other documents we file with the SEC.

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Financial Highlights and Trends

We recorded revenue of $70.1 million for the three months ended April 30, 2021, an increase of 28% as compared to the same period in the prior fiscal year.

The increase in revenue was primarily attributable to higher revenue from the IP security, automotive and wearable camera markets.

In the professional IP security camera market, despite lower demand from one of our largest China customers, continued growth elsewhere in the Asia and North America regions, together with increased demand from the Europe region, resulted in a significant revenue increase in this market.

We recorded revenue of $79.3 million and $149.5 million for the three and six months ended July 31, 2021, respectively.

This represented increases of 58.3% and 42.7% for the three and six months ended July 31, 2021, respectively, as compared to the same periods in the prior fiscal year.

The increases in revenue were primarily attributable to higher revenue and continued demand for our CV-based solutions in the IP security and automotive camera markets.

In the professional IP security camera market, continued growth in the Asia region and demand recovery from our two largest China customers, together with continued sales penetration into the North America and Europe regions, resulted in a significant revenue increase in this market.

In the home IP security camera market, revenue growth continued to be led by the North America region.

The increased revenue in the automotive markets, including both automotive OEM and aftermarket applications, was primarily due to a recovery in the automotive industry in the Asia region.

For the three months ended April 30, 2021, demand for our CV-based solutions in the IP security camera and automotive OEM markets continued to grow.

The increased revenue from the IP security, automotive and wearable camera markets was partially offset by decreased revenue in the consumer device markets, including aerial drone and sports camera markets.

We recorded an operating loss of $10.1 million for the three months ended April 30, 2021, as compared to an operating loss of $15.6 million for the three months ended April 30, 2020.

The decreased operating loss was primarily due to increases in revenue and gross profit, partially offset by increased operating expenses.

The increased operating expenses, mainly in support of new applications for the automotive markets as well as the development of computer vision-based solutions, related primarily to increased engineering headcount and stock-based compensation expenses, partially offset by decreased chip tape-out costs due to the timing, complexity and number of chips in development.

We incurred cash outflows from operating activities of $4.5 million for the three months ended April 30, 2021, as compared to cash inflows from operating activities of $7.6 million for the three months ended April 30, 2020.

The decreased cash flows from operating activities were primarily due to increased inventory purchases associated with longer supply chain lead times, increased accounts receivable associated with the timing of sales and decreased liabilities due to the timing of payments to our suppliers.

The decreased cash flows were partially offset by decreased net loss.

A recovery in the automotive OEM and aftermarket applications in the Asia region, as well as the adoption of our SoCs in the automotive fleet market, contributed an increase in revenue in the automotive markets.

The increased revenues from the IP security and automotive camera markets were partially offset by decreased revenue in the consumer aerial drone market.

We recorded operating losses of $6.0 million and $16.1 million for the three and six months ended July 31, 2021, respectively, as compared to operating losses of $15.3 million and $30.9 million for the three and six months ended July 31, 2020, respectively.

The decreased operating losses were primarily due to increases in revenue and gross profit, partially offset by increased operating expenses.

The increased operating expenses, mainly in support of development of automotive markets and computer vision-based solutions, related primarily to increased marketing and engineering headcount, increased stock-based compensation expenses, as well as increased engineering related costs.

We generated cash flows from operating activities of $9.9 million for the six months ended July 31, 2021, as compared to $5.2 million for the six months ended July 31, 2020.

The increased cash flows from operating activities were primarily due to decreased net loss and increased liabilities associated with the timing of payments to our suppliers, partially offset by increased inventory purchases associated with longer supply chain lead times and increased accounts receivable associated with the amount and timing of sales.

Factors Affecting Our Performance

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Similarly, while we have not yet experienced a major disruption in our supply chain as a result of the COVID-19 pandemic, we are experiencing significantly longer manufacturing times that, if they persist or worsen, could impact our ability to meet our customers’ demand for our solutions and negatively impact our revenue.

As a result of these factors we have increased our inventory levels in the near term.

Moreover, if there is a significant COVID-19 outbreak that impacts Samsung Electronic Corporation’s ability to manufacture our SoCs or our third-party contractors’ ability to assemble, test and ship our products, we could experience delays or reductions in our ability to ship products to our customers.

For example, Taiwan has recently experienced a significant rise in cases of COVID-19 that, if such conditions persist or worsen, could impact our third-party contractors’ ability to assemble, test and ship our products and negatively impair our operations and financial results.

For example, Taiwan recently experienced a significant rise in cases of COVID-19 that, if such conditions persist or worsen, could impact our third-party contractors’ ability to assemble, test and ship our products and negatively impair our operations and financial results.

The pandemic may also impact our customers’ ability to manufacture their products, support their customers or reduce or delay demand for their products, which could, in turn, reduce such demand for our solutions.

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The following table sets forth a summary of our statement of operations for the periods indicated:

Three Months Ended April 30,

Three Months Ended July 31,

Six Months Ended July 31,

(dollars in thousands)

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The following table sets forth operating results as a percentage of revenue of each line item for the periods indicated:

Three Months Ended April 30,

Three Months Ended July 31,

Six Months Ended July 31,

Cost of revenue

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We have historically experienced seasonal fluctuations in our quarterly revenue with our third fiscal quarter normally being the higher revenue quarter.

As we transition away from consumer markets, seasonal impact has decreased.

This fluctuation has been driven primarily by increased sales in IP security and consumer camera markets as our customers build inventories in preparation for the holiday shopping season.

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Research and development expense consists primarily of personnel costs, including salaries, stock-based compensation and employee benefits.

The expense also includes costs of development incurred in connection with our collaborations with our foundry vendors, costs of licensing intellectual property from third parties for product development, costs of development for software and hardware tools, cost of fabrication of mask sets for prototype products, and allocated depreciation and facility expenses, net of any research and development grants.

The expense also includes costs of development incurred in connection with our collaborations with our foundry vendors, costs of licensing intellectual property from third parties for product development, costs of development for software and hardware tools, cost of fabrication of mask sets for prototype products, equipment expenses, outside services and allocated depreciation and facility expenses, net of any research and development grants.

All research and development costs are expensed as incurred.

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Provision for Income Taxes

We are incorporated and domiciled in the Cayman Islands and also conduct business in several countries such as the United States, China, Taiwan, Hong Kong, Italy, South Korea and Japan, and we are subject to taxation in those jurisdictions.

We are incorporated and domiciled in the Cayman Islands and also conduct business in several countries such as the United States, China, Taiwan, Hong Kong, Italy, Germany, South Korea and Japan, and we are subject to taxation in those jurisdictions.

Our worldwide operating income is subject to varying tax rates, and our effective tax rate is highly dependent upon the geographic distribution of our earnings or losses and the tax laws and regulations in each geographical region.

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In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

Comparison of the Three Months Ended April 30, 2021 and 2020

Three Months Ended April 30,

Comparison of the Three and Six Months Ended July 31, 2021 and 2020

Three Months Ended July 31,

Six Months Ended July 31,

(dollars in thousands)

The increased revenue for the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, was primarily attributable to higher revenue from the IP security, automotive and wearable camera markets.

In the professional IP security camera market, despite lower demand from one of our largest China customers, continued growth elsewhere in the Asia and North America regions together with increased demand from the Europe region, resulted in a significant revenue increase in this market.

The increased revenue for the three and six months ended July 31, 2021, as compared to the same periods in the prior fiscal year, was primarily attributable to higher revenue and continued demand for our CV-based solutions in the IP security and automotive camera markets.

In the home IP security camera market, revenue growth continued to be led by the North America region.

The increased revenue in the automotive markets, including both automotive OEM and aftermarket applications, was primarily due to a recovery in the automotive industry in the Asia region.

For the three months ended April 30, 2021, demand for our CV-based solutions in the IP security camera and automotive OEM markets continued to grow.

Incorporation of our solutions into newly launched products from Shenzhen Dajiang Baiwang Technology Co., Ltd., or DJI, resulted in higher demand in the prior fiscal year but did not recur in the current fiscal period.

The increased revenues from the IP security and automotive camera markets were partially offset by decreased revenue in the consumer aerial drone market.

Cost of Revenue and Gross Margin

Three Months Ended April 30,

Three Months Ended July 31,

Six Months Ended July 31,

(dollars in thousands)

Cost of revenue

Cost of revenue increased for the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, primarily due to increased revenue, partially offset by favorable product mix and sales from previously reserved inventory.

Gross margin increased for the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, primarily due to gross margin improvement in the professional IP security camera market as a result of a customer concentration shift from the China region to the North America and Asia regions other than China.

Cost of revenue increased for the three and six months ended July 31, 2021, as compared to the same periods in the prior fiscal year, primarily due to increased revenue, partially offset by favorable product mix and sales from previously reserved inventory.

Gross margin increased for the three and six months ended July 31, 2021, as compared to the same periods in the prior fiscal year, primarily due to an increase in the percentage of our total revenue that was derived from the higher gross margin automotive markets.

Customer concentration shift from the China region to the North America and Asia regions other than China in the professional IP security camera market also contributed an improvement to the gross margin for the six months ended July 31, 2021.

Research and Development

Three Months Ended April 30,

Three Months Ended July 31,

Six Months Ended July 31,

(dollars in thousands)

Research and development

Research and development expense increased for the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, primarily due to increased employee benefit expense.

For the three months ended April 30, 2021, employee benefit expense increased by approximately $3.8 million as a result of issuance of stock awards, employee benefit programs and an increase in headcount.

Our engineering headcount was 598 at April 30, 2021 compared to 564 at April 30, 2020.

SoC development related cost was flat for the three months ended April 30, 2021 due to the timing, complexity and number of chips in development.

Research and development expense increased for the three and six months ended July 31, 2021, as compared to the same periods in the prior fiscal year, primarily due to increased employee benefit expense and engineering related costs.

For the three and six months ended July 31, 2021, employee benefit expense increased by approximately $4.3 million and $8.1 million, respectively, as a result of issuance of stock awards, employee benefit programs and an increase in headcount.

Our engineering headcount was 620 at July 31, 2021 compared to 561 at July 31, 2020.

Engineering related costs, including license fee, equipment expense, outside services and facility related expenses associated with the support of new applications, increased by approximately $2.1 million and $3.1 million for the three and six months ended July 31, 2021, respectively.

SoC development related costs increased by approximately $0.2 million for the three months ended July 31, 2021 while decreased by approximately $0.9 million for the six months ended July 31, 2021 due to the timing, complexity and number of chips in development.

Selling, General and Administrative

Three Months Ended April 30,

Three Months Ended July 31,

Six Months Ended July 31,

(dollars in thousands)

Selling, general and administrative

Selling, general and administrative expense increased for the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, primarily due to approximately $2.7 million of additional employee benefit expense as a result of issuance of stock awards, employee benefit programs and an increase in headcount.

Our selling, general and administrative headcount increased from 175 at April 30, 2020 to 187 at April 30, 2021 to support our business development in IP security, automotive OEM and robotics markets .

Selling, general and administrative expense increased for the three and six months ended July 31, 2021, as compared to the same periods in the prior fiscal year, primarily due to increased employee benefit expense.

For the three and six months ended July 31, 2021, employee benefit expense increased by approximately $3.4 million and $6.0 million, respectively, as a result of issuance of stock awards, employee benefit programs and an increase in headcount.

Our selling, general and administrative headcount increased from 176 at July 31, 2020 to 189 at July 31, 2021 in support of business development in the IP security, automotive OEM and robotics markets .

The increase was partially offset by a reduction in facility related expenses of approximately $0.8 million and $1.1 million for the three and six months ended July 31, 2021, respectively, caused by additional facility allocation to engineering in support of new applications for the automotive markets as well as the development of computer vision-based solutions .

Other Income, Net

Three Months Ended April 30,

Three Months Ended July 31,

Six Months Ended July 31,

(dollars in thousands)

Other income, net

The decrease in other income, net, for the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, was primarily due to lower interest from our cash deposits and lower yields from our debt security investments.

The decrease in other income, net, for the three and six months ended July 31, 2021, as compared to the same periods in the prior fiscal year, was primarily due to lower yields from our debt security investments, lower interest from our cash deposits and losses from foreign currency transactions and remeasurements.

Provision for Income Taxes

Three Months Ended April 30,

Three Months Ended July 31,

Six Months Ended July 31,

(dollars in thousands)

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The quarterly income taxes reflect an estimate of the corresponding fiscal year’s annual effective tax rate and include, when applicable, adjustments from discrete tax items arising in that quarter.

The increase in income tax expense for the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, 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.

The increase in income tax expense for the three and six months ended July 31, 2021, as compared to the same periods in the prior fiscal year, was primarily due to an increase in the proportion of profits generated in higher-tax jurisdictions, partially offset by an increase in the U.S.

federal research tax credit as well as an increase in tax benefits from excess stock-based compensation deductions.

Liquidity and Capital Resources

As of April 30, 2021 and January 31, 2021, we had cash, cash equivalents and marketable debt securities of approximately $435.5 million and $440.7 million, respectively.

As of July 31, 2021 and January 31, 2021, we had cash, cash equivalents and marketable debt securities of approximately $449.2 million and $440.7 million, respectively.

We invest in highly liquid, short-term marketable debt securities and hold these investments as available-for-sale securities.

As of April 30, 2021, these securities had a fair value of approximately $214.9 million with immaterial unrealized losses caused by market fluctuations.

As of July 31, 2021, these securities had a fair value of approximately $215.0 million with immaterial unrealized losses caused by market fluctuations.

The following table summarizes our cash flows for the periods indicated:

Three Months Ended April 30,

Six Months Ended July 31,

(in thousands)

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Net Cash Provided by (Used in) Operating Activities

Net cash used in operating activities increased for the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, primarily due to increased inventory purchases associated with longer supply chain lead times, increased accounts receivable associated with the timing of sales and decreased liabilities due to the timing of payments to our suppliers.

The decreased cash flows were partially offset by decreased net loss.

Net Cash Used in Investing Activities

Net cash used in investing activities increased for the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, primarily due to approximately $8.0 million of additional investments in debt securities, as well as approximately $1.5 million of additional payments for tangible and intangible assets purchase, partially offset by approximately $0.5 million of net cash receipts from the sale and maturity of debt securities.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities increased for the three months ended April 30, 2021, as compared to the same period in the prior fiscal year, primarily due to approximately $2.0 million of additional cash proceeds from option exercises and employee stock purchase withholding and $1.0 million of cash used for repurchasing our ordinary shares under the stock repurchase program for the three months ended April 30, 2020 but which did not recur in the current fiscal period.

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased for the six months ended July 31, 2021, as compared to the same period in the prior fiscal year, primarily due to decreased net loss and increased liabilities associated with the timing of payments to our suppliers, partially offset by increased inventory purchases associated with longer supply chain lead times and increased accounts receivable associated with the amount and timing of sales.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities increased for the six months ended July 31, 2021, as compared to net cash used in investing activities for the same period in the prior fiscal year, primarily due to approximately $22.6 million of additional cash receipts from our debt security investments, partially offset by approximately $3.1 million of additional payments for tangible and intangible assets purchase.

Net Cash Provided by Financing Activities

Net cash provided by financing activities increased for the six months ended July 31, 2021, as compared to the same period in the prior fiscal year, primarily due to approximately $3.3 million of additional cash proceeds from option exercises and employee stock purchase withholding and $1.0 million of cash used for repurchasing our ordinary shares under the stock repurchase program in the prior fiscal year that did not recur in the current fiscal period.

The increase was partially offset by approximately $0.5 million of additional payments for intangible assets.

Stock Repurchase Program

No ordinary shares were repurchased in the three months ended April 30, 2021.

As of April 30, 2021, $49.0 million remained available for repurchases under the current repurchase program through June 30, 2021.

No ordinary shares were repurchased in the six months ended July 31, 2021.

During the second quarter of fiscal year 2022, our Board of Directors approved an extension of the prior $50.0 million repurchase program for an additional twelve months ending June 30, 2022.

As of July 31, 2021, $49.0 million remained available for repurchases under the current repurchase program through June 30, 2022.

Repurchases under the program 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.

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Operating and Capital Expenditure Requirements

As of April 30, 2021, we had cash, cash equivalents and marketable debt securities of approximately $435.5 million.

As of July 31, 2021, we had cash, cash equivalents and marketable debt securities of approximately $449.2 million.

We believe that our existing cash balances will be sufficient to meet our anticipated cash requirements through at least the next 12 months.

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The sale of equity and convertible debt securities may result in dilution to our shareholders, and those securities may have rights senior to those of our ordinary shares.

If we raise additional funds through the issuance of convertible debt securities, these securities could contain covenants that would restrict our operations.

If we raise additional funds through the issuance of convertible debt securities or borrowing funds commercially, we may become subject to covenants that would restrict our operations.

We may require additional capital beyond our currently anticipated amounts.

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Manufacturing Purchase Obligations

As of April 30, 2021, we had purchase obligations with our independent contract manufacturers of $67.6 million.

We signed a separate lease for additional space for our Shanghai office for a period of 40 months starting from August 1, 2021 through November 30, 2024.

As of July 31, 2021, we had purchase obligations with our independent contract manufacturers of $72.3 million.

During the first half of fiscal year 2022, we signed a separate lease for additional space for our Shanghai, China office for a period of 40 months starting from August 1, 2021 through November 30, 2024.

The lease will be recorded as an operating right-of-use asset and corresponding operating lease liability in the balance sheet upon lease commencement on August 1, 2021.

T he total estimated future undiscounted cash payments for this additional lease are approximately $1.7 million.

Except as described above with respect to the manufacturing purchase obligations and lease, there were no other material changes in our contractual obligations, commitments and contingencies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

Except as described above with respect to the manufacturing purchase obligations and Shanghai office lease, there were no other material changes in our contractual obligations, commitments and contingencies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

Please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations, Commitments and Contingencies” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 for a description of our contractual obligations.

Off-Balance Sheet Arrangements

As of April 30, 2021, we did not engage in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

As of July 31, 2021, we did not engage in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

Recent Authoritative Accounting Guidance

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis