What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-09-08 compared with 2022-06-08 · 84 added, 78 removed, 214 unchanged (43% of the section changed)

34 unchanged sentences

O ur development efforts are focused on SoCs that provide both human viewing and computer vision functionality.

As a result, we believe that our future revenue growth, if any, will significantly depend upon our ability to expand within camera markets with our AI and computer vision technology, particularly in the professional IP security and home security and monitoring camera markets, as well as emerging markets such as AI-enabled security cameras, AI-based driving applications, including driver monitoring systems, advanced blind spot detection, object detection, and deep learning algorithms for HD mapping solutions, OEM automotive advanced driver assistance systems , or ADAS, applications, and industrial and robotics markets.

As a result, we believe that our future revenue growth, if any, will significantly depend upon our ability to expand within camera markets with our AI and computer vision technology, particularly in the professional IP security and home security and monitoring camera markets, as well as emerging markets such as AI-enabled security cameras, AI-based driving applications, including driver monitoring systems, advanced blind spot detection, object detection, and deep learning algorithms for HD mapping solutions, automotive advanced driver assistance systems , or ADAS, applications, and industrial and robotics markets.

We expect our research and development expenditures to increase in comparison to prior periods as we devote additional resources to the development of innovative video and image processing solutions with increased functionality, such as AI and CV capabilities, and as we target new markets .

We sell our SoC solutions to leading original design manufacturers, or ODMs, and OEMs globally, and in the automotive market, we also sell to Tier-1 suppliers.

We sell our SoC solutions to leading original design manufacturers, or ODMs, and original equipment manufacturers, or OEMs, globally, and in the automotive market, we also sell to Tier-1 suppliers.

We refer to ODMs and Tier-1 automotive suppliers as our customers and OEMs as our end customers, except as otherwise indicated or as the context otherwise requires.

10 unchanged sentences

We anticipate that product lifecycles will typically be longer than 24 months in the OEM automotive and industrial and robotics markets, as new product introductions occur less frequently in these markets.

F inancial Highlights and Trends

We recorded revenue of $90.3 million for the three months ended April 30, 2022, an increase of 28.8% as compared to the same period in the prior fiscal year.

The increase was primarily attributable to higher revenue in the professional IP security and automotive OEM sensing and fleet markets.

In the professional IP security market, strong growth in the North America and Asia regions other than China, together with continued sales penetration into the Europe region, resulted in a significant revenue increase in this market.

In the automotive markets, continued demand for our SoCs and applications in the automotive OEM sensing and fleet markets contributed to an increase in revenue.

The increased revenue was partially offset by decreased revenue in consumer-related markets, including home IP security, automotive aftermarket and consumer markets, primarily due to decreased consumer demand from the impact of pandemic lockdowns in China.

Despite lower demand from the China region, our computer vision-based solutions demonstrated a strong revenue growth in the first quarter of fiscal year 2023, representing continued adoption of our CV-based solutions by customers.

We recorded an operating loss of $10.5 million for the three months ended April 30, 2022, as compared to an operating loss of $10.1 million for the three months ended April 30, 2021.

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

The increased operating expenses primarily related to increased personnel costs associated with headcount growth and benefit programs, as well as increased engineering-related costs for supporting automotive, robotic and industrial applications of our CV-based solutions, partially offset by decreased chip tape-out costs due to the timing and number of chips in development.

We generated cash inflows from operating activities of $33.6 million for the three months ended April 30, 2022, as compared to cash outflows from operating activities of $4.5 million for the three months ended April 30, 2021.

The increased cash flows from operating activities were primarily related to decreased accounts receivable associated with the timing of sales and lower inventory purchases due to pandemic lockdowns in China resulting in disrupted orders and shipments throughout the Asia supply chain, partially offset by decreased liabilities associated with employee benefit payments and the timing of payments to our suppliers.

Financial Highlights

We recorded revenue of $80.9 million and $171.2 million for the three and six months ended July 31, 2022, respectively.

This represented increases of 2.0% and 14.5%, respectively, as compared to the same periods in the prior fiscal year.

Despite lower product unit shipments affected by supply chain disruptions in the semiconductor industry, continued adoption of our CV-based solutions as well as increased revenue from nonrecurring engineering (NRE) project services resulted in higher revenue in the automotive camera, professional IP security camera and consumer markets, especially in the North America and Asia regions other than China.

For the three months ended July 31, 2022, the increase in revenue was partially offset by decreased revenue from our two largest China customers in the professional IP security camera market due to lower demand affected by pandemic lockdowns in China.

We recorded operating losses of $20.2 million and $30.7 million for the three and six months ended July 31, 2022, respectively, as compared to operating losses of $6.0 million and $16.1 million for the three and six months ended July 31, 2021, respectively.

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

The increased operating expenses primarily related to higher personnel costs associated with headcount growth and benefit programs, increased chip tape-out costs due to the timing and number of chips in development, as well as increased engineering-related expenses for supporting automotive, robotic and industrial applications of our CV-based solutions.

We generated cash flows from operating activities of $33.0 million for the six months ended July 31, 2022, as compared to $9.9 million for the six months ended July 31, 2021.

The increased cash flows from operating activities were primarily due to higher collection from accounts receivable associated with the timing of sales and lower inventory purchases due to supply chain disruptions in the semiconductor industry, partially offset by decreased liabilities associated with employee benefit payments and the timing of payments to our suppliers.

As of July 31, 2022, we have invested $100.0 million of cash in money market funds and debt securities of corporations.

All of the investments are denominated in United States dollars and reported at fair value as available-for-sale securities in our condensed consolidated balance sheets.

Factors Affecting Our Performance

6 unchanged sentences

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.

While we cannot quantify specific impacts of the COVID-19 pandemic or actions taken by governments and businesses in response thereto, our results of operations and financial condition may be negatively affected if we encounter significant supply chain problems, reductions in demand due to our customers or end customers having problems, or other unexpected COVID-19 ramifications.

The Global supply shortages, and the uncertainty in customer demand as well as the worldwide economy, in general, have continued as a result of the COVID-19 pandemic, and may be further exacerbated by the impacts of high inflation.

We may experience increased volatility in our sales and revenues in the near future.

Recently, some customers have indicated they are reducing their inventory levels, which may reduce such customers’ demand for our products.

The magnitude and duration of such volatility is uncertain and thus its impact on our business cannot be reasonably estimated at this time.

Ability to Capitalize on AI and Computer Vision Trends .

52 unchanged sentences

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)

5 unchanged sentences

Loss from operations

Other income, net

Other income (expense), net

Loss before income taxes

1 unchanged sentence

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

4 unchanged sentences

Loss from operations

Other income, net

Other income (expense), net

Loss before income taxes

3 unchanged sentences

Although we expect these human viewing camera markets, in particular the IP security and automotive video recorder markets, to continue to generate revenue for the foreseeable future, we have recently introduced new SoCs targeting emerging AI and computer vision applications in the IP security camera, OEM automotive, industrial and robotics markets.

We derive a substantial portion of our revenue from sales made indirectly through our two major distributors, WT Microelectronics Co., Ltd., formerly Wintech Microelectronics Co., Ltd., or WT, and Hakuto Co., Ltd., or Hakuto, a Japan distributor, and directly to one of our ODM customers, Chicony Electronics Co., Ltd., or Chicony.

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

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.

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

In addition, the continued effects of the COVID-19 pandemic and persistent supply chain challenges may negatively affect our normal seasonality this year.

We derive a substantial portion of our revenue from sales made indirectly through one of our distributors, WT Microelectronics Co., Ltd., formerly Wintech Microelectronics Co., Ltd., or WT, and directly to one of our ODM customers, Chicony Electronics Co., Ltd., or Chicony.

The continued effects of the COVID-19 pandemic and persistent supply chain challenges may negatively affect our business performance and revenues this year.

Our average selling prices fluctuate based on the mix of our solutions sold in a period which reflects the impact of both changes in unit sales of existing solutions as well as the introduction and sales of new solutions.

Our CV-based solutions generally have higher selling prices than our traditional video and image processing SoC solutions that do not enable CV functionality.

Our solutions are typically characterized by a life cycle that begins with higher average selling prices and lower volumes, followed by broader market adoption, higher volumes and average selling prices that are lower than initial levels.

11 unchanged sentences

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, costs 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.

The expense also includes costs of development incurred in connection with our collaborations with our foundry vendors, costs and amortization of licensing intellectual properties from third parties for product development, costs of development for software and hardware tools, costs 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.

4 unchanged sentences

We expect our selling, general and administrative expense to increase in absolute dollars as we continue to maintain the infrastructure and expand the size of our sales and marketing organization to support our business strategy of addressing new opportunities with our computer vision technology.

Other Income, Net

Other Income (Expense), Net

Other income, net, consists primarily of interests and yields from debt security investments and cash deposits with financial institutions, as well as miscellaneous subsidies granted from a foreign government.

15 unchanged sentences

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, 2022 and 2021

Three Months Ended April 30,

Comparison of the Three and Six Months Ended July 31, 2022 and 2021

Three Months Ended July 31,

Six Months Ended July 31,

(dollars in thousands)

The increased revenue for the three months ended April 30, 2022, as compared to the same period in the prior fiscal year, was primarily attributable to higher revenue in the professional IP security and automotive OEM sensing and fleet markets.

In the automotive markets, continued demand for our SoCs and applications in the automotive OEM sensing and fleet markets contributed to an increase in revenue.

Revenue increased for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year.

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, 2022, as compared to the same period in the prior fiscal year, primarily due to increased revenue.

Gross margin increased for the three months ended April 30, 2022, as compared to the same period in the prior fiscal year, primarily due to an increase in the percentage of our total revenue that was derived from higher gross margin CV-based solutions and automotive markets.

A 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 in gross margin for the three months ended April 30, 2022.

The increased gross margin was partially offset by an increase in inventory reserves due to a decrease in demand in the China region.

The changes in cost of revenue for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, were primarily due to higher manufacturing cost for CV-based solutions and an approximately $1.9 million adverse purchase order commitment recognized in the second quarter of fiscal year 2023, partially offset by lower volume of product unit shipments in the three and six months ended July 31, 2022 affected by supply chain disruptions in the semiconductor industry.

Gross margin increased for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, primarily due to an increase in the percentage of our total revenue derived from higher gross margin CV-based solutions and increased sales into automotive markets, as well as higher margin NRE revenue contracts.

A customer concentration shift from the China region to the North America and Asia regions outside of China in the professional IP security camera market also contributed to an improvement in the gross margin.

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, 2022, as compared to the same period in the prior fiscal year, primarily due to increased personnel costs and engineering-related expenses.

Personnel costs increased by approximately $8.5 million as a result of issuance of stock awards, employee benefit programs and an increase of 93 in headcount, including 44 engineering headcount added from our acquisition of Oculii Corp, or Oculii, in the fourth quarter of fiscal year 2022.

Engineering-related expenses, including equipment and tool cost, outside services and facility related expenses in support of new SoCs and related applications, increased by approximately $1.4 million.

The increase was partially offset by decreased SoC development cost due to the timing and number of chips in development.

During the three months ended April 30, 2022, SoC development cost decreased by approximately $1.1 million .

Research and development expense increased for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, primarily due to increased personnel costs, engineering-related expenses and SoC development cost.

Personnel costs increased by approximately $8.4 million and $17.0 million for the three and six months ended July 31, 2022 , respectively, as a result of higher stock-based compensation expense and an increase of 68 employees, including 44 engineering headcount added from our acquisition of Oculii Corp, or Oculii, in the fourth quarter of fiscal year 2022.

Engineering-related expenses, including costs and depreciation of equipment and tools, amortization of licensed intellectual property , outside services and facility related expenses in support of new SoCs and related applications, increased by approximately $2.9 million and $4.2 million, respectively.

The increases in research and development expense were also attributable to increased SoC development cost due to the timing and number of chips in development.

During the three and six months ended July 31, 2022, SoC development cost increased by approximately $1.5 million and $0.3 million, respectively .

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, 2022, as compared to the same period in the prior fiscal year, primarily due to increased personnel costs and professional service expenses.

Personnel costs increased by approximately $3.5 million as a result of issuance of stock awards, stock acceleration and employee benefit programs.

The increase was also attributable to approximately $0.6 million of additional professional service expenses to support our business development in the IP security, automotive and robotics markets.

Other Income, Net

Three Months Ended April 30,

Selling, general and administrative expense increased for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, primarily due to increased personnel costs, professional services and increased facility-related expenses.

Personnel costs increased by approximately $2.2 million and $5.7 million, respectively, as a result of higher stock-based compensation expense and an increase of 31 employees.

The increases were also attributable to approximately $0.7 million and $1.6 million, respectively, of additional professional services and facility-related expenses to support our business development in the IP security, automotive and robotics markets .

Other Income (Expense), Net

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, 2022, as compared to the same period in the prior fiscal year, was primarily due to the full liquidation of our debt security investments in fiscal year 2022 to finance the acquisition of Oculii, resulting in reduced yields from investments.

Other income (expense), net

The decreases in other income (expense), net, for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, were primarily due to the full liquidation of our debt security investments in fiscal year 2022 to finance the acquisition of Oculii, resulting in reduced interests and yields from investments.

In July 2022, we resumed our investment in debt securities with $100.0 million of investments in money market funds and debt securities of corporations.

Provision for Income Taxes

Three Months Ended April 30,

Three Months Ended July 31,

Six Months Ended July 31,

(dollars in thousands)

2 unchanged sentences

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.

We update our estimate of the annual effective tax rate each quarter, and if the estimated annual tax rate changes, a cumulative adjustment is made in that quarter.

This could result in a higher or lower effective tax rate during a particular quarter, based on the mix and timing of actual earnings or losses versus annual projections.

The decrease in income tax expense for the three months ended April 30, 2022, as compared to the same period in the prior fiscal year, was primarily due to an increase in the proportion of profits generated in lower-tax jurisdictions.

The increases in income tax expense for the three and six months ended July 31, 2022, as compared to the same periods in the prior fiscal year, were primarily due to a decrease in the U.S.

federal research tax credit, a decrease in tax benefits from excess stock-based compensation deductions as well as an increase in non-deductible stock-based compensation, partially offset by a decrease in the proportion of profits generated in higher tax jurisdictions.

Liquidity and Capital Resources

As of April 30, 2022 and January 31, 2022, we had cash and cash equivalents of approximately $200.6 million and $171.0 million, respectively.

After a full liquidation of our debt security investments in fiscal year 2022 to finance the acquisition of Oculii, there were no debt security investments as of April 30, 2022.

As of July 31, 2022 and January 31, 2022, we had cash, cash equivalents and marketable debt securities of approximately $197.9 million and $171.0 million, respectively.

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

As of July 31, 2022, these securities had a fair value of approximately $100.0 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 increase (decrease) in cash, cash equivalents and restricted cash

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities increased for the three months ended April 30, 2022, as compared to the same period in the prior fiscal year, primarily related to decreased accounts receivable associated with the timing of sales and lower inventory purchases due to pandemic lockdowns in China resulting in disrupted orders and shipments throughout the Asia supply chain, partially offset by decreased liabilities associated with employee benefit payments and the timing of payments to our suppliers.

Net Cash Used in Investing Activities

Net cash used in investing activities decreased for the three months ended April 30, 2022, as compared to the same period in the prior fiscal year, primarily due to approximately $9.3 million less of net investments in debt securities as a result of the full liquidation of investments in fiscal year 2022 as well as an approximately $0.7 million claim from an escrow account associated with the acquisition of Oculii, partially offset by approximately $2.7 million of net cash payments for long-lived assets.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities decreased for the three months ended April 30, 2022, as compared to the same period in the prior fiscal year, primarily due to approximately $2.0 million less cash proceeds from option exercises and employee stock purchase withholdings.

Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted cash

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased for the six months ended July 31, 2022, as compared to the same period in the prior fiscal year, primarily due to higher collection from accounts receivable associated with the timing of sales and lower inventory purchases due to supply chain disruptions in the semiconductor industry, partially offset by decreased liabilities associated with employee benefit payments and the timing of payments to our suppliers.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities increased for the six months ended July 31, 2022, as compared to net cash provided by investing activities for the same period in the prior fiscal year, primarily due to approximately $9.6 million less net cash receipts from debt security investments after a full liquidation of investments in fiscal year 2022 and approximately $4.3 million higher cash payments for purchase of tangible and intangible assets, partially offset by an approximately $0.7 million claim from an escrow account associated with the acquisition of Oculii.

Net Cash Provided by Financing Activities

Net cash provided by financing activities decreased for the six months ended July 31, 2022, as compared to the same period in the prior fiscal year, primarily due to approximately $3.1 million less cash proceeds from option exercises and employee stock purchase withholdings as a result of lower average stock price in the current fiscal year.

Stock Repurchase Program

No ordinary shares were repurchased in the three months ended April 30, 2022.

As of April 30, 2022, $49.0 million remained available for repurchases under the current repurchase program.

In May 2022, the Company’s Board of Directors approved an extension of this repurchase program through June 30, 2023.

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.

The repurchase program does not obligate us to acquire any particular amount of ordinary shares, and it may be suspended at any time at the company's discretion.

Repurchases are funded using working capital and any repurchased shares are recorded as authorized but unissued shares.

No ordinary shares were repurchased during the six months ended July 31, 2022.

On May 27, 2022, our Board of Directors approved an extension of the current share repurchase program for an additional twelve months ending June 30, 2023.

The repurchase program does not obligate us to acquire any particular amount of ordinary shares, and it may be suspended at any time at our discretion.

As of July 31, 2022, there was approximately $49.0 million remaining available for repurchases under the repurchase program through June 30, 2023.

Operating and Capital Expenditure Requirements

As of April 30, 2022, we had cash and cash equivalents of approximately $200.6 million.

As of July 31, 2022, we had cash, cash equivalents and marketable debt securities of approximately $197.9 million.

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

12 unchanged sentences

the emergence of competing or complementary technologies or products;

global economic and political conditions;

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights or participating in litigation-related activities;

2 unchanged sentences

Manufacturing Purchase Obligations

As of April 30, 2022, we had purchase obligations with our independent contract manufacturers of $66.3 million.

As of July 31, 2022, we had purchase obligations with our independent contract manufacturers of $68.3 million.

Except as described above with respect to the manufacturing purchase obligations, 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, 2022.

1 unchanged sentence

Off-Balance Sheet Arrangements

As of April 30, 2022, 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, 2022, 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

3 unchanged sentences

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