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 October 31, January 31, 2022 2022 ASSETS Current assets: Cash and cash equivalents $ 112,837 $ 171,043 Marketable debt securities 86,197 — Accounts receivable, net 48,556 44,307 Inventories 45,395 45,219 Restricted cash 7 10 Prepaid expenses and other current assets 5,338 6,169 Total current assets 298,330 266,748 Property and equipment, net 10,753 10,134 Deferred tax assets, non-current 14,585 15,340 Intangible assets, net 47,550 46,302 Operating lease right-of-use assets, net 9,186 11,127 Goodwill 303,625 303,625 Other non-current assets 3,428 4,269 Total assets $ 687,457 $ 657,545 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 29,130 31,170 Accrued and other current liabilities 43,561 52,064 Operating lease liabilities, current 3,425 3,391 Income taxes payable 3,782 1,245 Deferred revenue, current 1,036 1,414 Total current liabilities 80,934 89,284 Operating lease liabilities, non-current 5,897 8,322 Other long-term liabilities 12,228 12,763 Total liabilities 99,059 110,369 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 October 31, 2022 and January 31, 2022, respectively — — Ordinary shares, $ 0.00045 par value per share, 200,000,000 shares authorized; 38,746,179 and 37,302,818 shares issued and outstanding at October 31, 2022 and January 31, 2022, respectively 17 17 Additional paid-in capital 543,833 447,287 Accumulated other comprehensive loss ( 1,043 ) — Retained earnings 45,591 99,872 Total shareholders’ equity 588,398 547,176 Total liabilities and shareholders' equity $ 687,457 $ 657,545 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Revenue $ 83,096 $ 92,167 $ 254,285 $ 241,627 Cost of revenue 31,418 34,541 94,996 90,817 Gross profit 51,678 57,626 159,289 150,810 Operating expenses: Research and development 52,864 41,362 151,892 118,794 Selling, general and administrative 18,944 17,475 58,213 49,323 Total operating expenses 71,808 58,837 210,105 168,117 Loss from operations ( 20,130 ) ( 1,211 ) ( 50,816 ) ( 17,307 ) Other income, net 1,433 407 1,493 1,218 Loss before income taxes ( 18,697 ) ( 804 ) ( 49,323 ) ( 16,089 ) Provision (benefit) for income taxes 1,112 ( 1,560 ) 4,958 1,129 Net income (loss) $ ( 19,809 ) $ 756 $ ( 54,281 ) $ ( 17,218 ) Net income (loss) per share attributable to ordinary shareholders: Basic $ ( 0.51 ) $ 0.02 $ ( 1.42 ) $ ( 0.47 ) Diluted $ ( 0.51 ) $ 0.02 $ ( 1.42 ) $ ( 0.47 ) Weighted-average shares used to compute net income (loss) per share attributable to ordinary shareholders: Basic 38,582,584 36,792,187 38,185,421 36,391,676 Diluted 38,582,584 39,046,274 38,185,421 36,391,676 See accompanying notes to condensed consolidated financial statements. 4 AMBARELLA, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited, in thousands) Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Net income (loss) $ ( 19,809 ) $ 756 $ ( 54,281 ) $ ( 17,218 ) Other comprehensive loss, net of tax: Net change and reclassification of unrealized losses on investments ( 1,041 ) ( 608 ) ( 1,043 ) ( 1,219 ) Other comprehensive loss, net of tax ( 1,041 ) ( 608 ) ( 1,043 ) ( 1,219 ) Comprehensive income (loss) $ ( 20,850 ) $ 148 $ ( 55,324 ) $ ( 18,437 ) 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 (Loss) Earnings Total Balance--January 31, 2022 37,302,818 $ 17 $ 447,287 $ — $ 99,872 $ 547,176 Issuance of shares through employee equity plans 736,516 — 8,589 — — 8,589 Issuance of shares through employee stock purchase plan 43,545 — 3,250 — — 3,250 Stock-based compensation expense — — 26,155 — — 26,155 Net loss — — — — ( 10,822 ) ( 10,822 ) Balance--April 30, 2022 38,082,879 17 485,281 — 89,050 574,348 Issuance of shares through employee equity plans 323,572 — 1,204 — — 1,204 Stock-based compensation expense — — 26,211 — — 26,211 Other comprehensive loss - net of tax — — — ( 2 ) — ( 2 ) Net loss — — — — ( 23,650 ) ( 23,650 ) Balance--July 31, 2022 38,406,451 17 512,696 ( 2 ) 65,400 578,111 Issuance of shares through employee equity plans 278,687 — 386 — — 386 Issuance of shares through employee stock purchase plan 61,041 — 3,386 — — 3,386 Stock-based compensation expense — — 27,365 — — 27,365 Other comprehensive loss - net of tax — — — ( 1,041 ) — ( 1,041 ) Net loss — — — — ( 19,809 ) ( 19,809 ) Balance--October 31, 2022 38,746,179 $ 17 $ 543,833 $ ( 1,043 ) $ 45,591 $ 588,398 Accumulated Outstanding Additional Other Ordinary Shares Paid-in Comprehensive Retained Shares Amount Capital Income (Loss) Earnings Total Balance--January 31, 2021 35,547,440 $ 16 $ 347,458 $ 1,219 $ 126,283 $ 474,976 Issuance of shares through employee equity plans 643,120 — 6,741 — — 6,741 Issuance of shares through employee stock purchase plan 82,783 — 3,694 — — 3,694 Stock-based compensation expense — — 17,128 — — 17,128 Other comprehensive loss - 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 Issuance of shares through employee equity plans 371,293 — 1,461 — — 1,461 Stock-based compensation expense — — 17,639 — — 17,639 Other comprehensive loss - net of tax — — — ( 184 ) — ( 184 ) Net loss — — — — ( 7,156 ) ( 7,156 ) Balance--July 31, 2021 36,644,636 16 394,121 608 108,309 503,054 Issuance of shares through employee equity plans 244,507 1 2,200 — — 2,201 Issuance of shares through employee stock purchase plan 35,999 — 3,513 — — 3,513 Stock-based compensation expense — — 20,319 — — 20,319 Other comprehensive loss - net of tax — — — ( 608 ) — ( 608 ) Net income — — — — 756 756 Balance--October 31, 2021 36,925,142 $ 17 $ 420,153 $ — $ 109,065 $ 529,235 See accompanying notes to condensed consolidated financial statements. 6 AMBARELLA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Nine Months Ended October 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 54,281 ) $ ( 17,218 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 14,426 9,139 Amortization (accretion) of premium (discount) on marketable debt securities, net ( 281 ) 1,034 Stock-based compensation 82,051 60,267 Deferred income taxes 755 ( 553 ) Other non-cash items, net 28 ( 517 ) Changes in operating assets and liabilities: Accounts receivable ( 4,249 ) ( 19,802 ) Inventories ( 176 ) ( 20,958 ) Prepaid expenses and other current assets 80 ( 275 ) Other non-current assets 841 878 Accounts payable ( 2,044 ) 5,947 Accrued and other current liabilities 2,813 2,359 Income taxes payable 2,537 396 Deferred revenue ( 378 ) ( 57 ) Operating lease liabilities ( 3,254 ) ( 2,681 ) Other long-term liabilities 135 265 Net cash provided by operating activities 39,003 18,224 Cash flows from investing activities: Purchase of investments ( 87,641 ) ( 118,726 ) Sales of investments 756 208,132 Maturities of investments — 107,760 Purchase of tangible and intangible assets ( 13,023 ) ( 6,235 ) Escrow claim associated with business acquisition 749 — Net cash provided by (used in) investing activities ( 99,159 ) 190,931 Cash flows from financing activities: Proceeds from exercise of stock options and employee stock purchase plan 6,834 11,127 Long-term financing payment for intangible assets ( 4,887 ) ( 3,796 ) Net cash provided by financing activities 1,947 7,331 Net increase (decrease) in cash, cash equivalents and restricted cash ( 58,209 ) 216,486 Cash, cash equivalents and restricted cash at beginning of period 171,053 241,284 Cash, cash equivalents and restricted cash at end of period $ 112,844 $ 457,770 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 1,340 $ 1,294 Supplemental disclosure of noncash investing and financing activities: Unpaid liabilities related to tangible and intangible assets purchases $ 1,239 $ 1,346 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 powerful 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. These low power SoCs deliver exceptional video and image quality and can extract valuable data from high-resolution video and radar streams. The Company is currently addressing a broad range of human and computer vision applications, including video security, 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 equipment manufacturers, or OEMs, who include the Company’s SoCs in their products, and original design manufacturers, or ODMs, who include the Company’s SoCs in the products that they supply to 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 2022 fiscal year filed with the SEC on April 1, 2022 (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. Significant Accounting Policies There have been no material changes to the Company’s significant accounting policies described in Note 1 - Organization and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022. 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 WT, 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. 8 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 of money market funds, commercial paper, debt securities of corporations or corporate bonds, asset-backed securities and U.S. government securities 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. Restricted Cash Amounts included in restricted cash represent those required to be set aside to secure certain transactions in a foreign entity. As of October 31, 2022 and January 31, 2022, restricted cash was immaterial, respectively. The following table presents cash, cash equivalents and restricted cash reported on the condensed consolidated balance sheets, and the totals are presented on the condensed consolidated statements of cash flows: As of October 31, 2022 January 31, 2022 October 31, 2021 January 31, 2021 (in thousands) Cash and cash equivalents $ 112,837 $ 171,043 $ 457,760 $ 241,274 Restricted cash 7 10 10 10 Total as presented in the condensed consolidated statements of cash flows $ 112,844 $ 171,053 $ 457,770 $ 241,284 Recent Accounting Pronouncements None. 2. Financial Instruments and Fair Value In the second quarter of fiscal year 2023, the Company resumed its investments in money market funds and debt securities after a full liquidation of its investments in fiscal year 2022 to finance the acquisition of Oculii Corporation, or Oculii. The debt security investment portfolio consists of commercial paper, debt securities of corporations or corporate bonds, asset-backed securities and U.S. government securities. All of the investments are denominated in United States dollars and reported at fair value as available-for-sale securities in the condensed consolidated balance sheets as follows: As of October 31, 2022 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Money market funds $ 13,525 $ — $ — $ 13,525 Commercial paper 18,161 — — 18,161 Corporate bonds 21,390 1 ( 425 ) 20,966 Asset-backed securities 16,287 — ( 260 ) 16,027 U.S. government securities 31,402 — ( 359 ) 31,043 Total cash equivalents and marketable debt securities $ 100,765 $ 1 $ ( 1,044 ) $ 99,722 As of January 31, 2022 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Money market funds $ 20 $ — $ — $ 20 Total cash equivalents and marketable debt securities $ 20 $ — $ — $ 20 As of October 31, 2022, there were no debt securities with unrealized losses for more than twelve months. 9 As of October 31, 2022 January 31, 2022 (in thousands) Included in cash equivalents $ 13,525 $ 20 Included in marketable debt securities 86,197 — Total cash equivalents and marketable debt securities $ 99,722 $ 20 The contractual maturities of the investments at October 31, 2022 and January 31, 2022 were as follows: As of October 31, 2022 January 31, 2022 (in thousands) Less than one year $ 54,829 $ 20 Due in 1 - 5 years 44,893 — Total cash equivalents and marketable debt securities $ 99,722 $ 20 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 loss in the condensed consolidated balance sheets. The credit-related losses were not material for the three and nine months ended October 31, 2022, and 2021, respectively. Interest income, including amortization of premiums and accretion of discounts related to the investments, as well as realized gains and losses from sales of the investments are recorded in other income, net, in the condensed consolidated statements of operations. For the three months ended October 31, 2022 and 2021, interest income and realized gains, net, was approximately $ 0.7 million and $ 0.7 million, respectively. For the nine months ended October 31, 2022 and 2021, interest income and realized gains, net, were approximately $ 0.8 million and $ 1.7 million, 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. 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. 10 The following tables present the fair value of the financial instruments measured on a recurring basis as of October 31, 2022 and January 31, 2022, respectively: As of October 31, 2022 Total Level 1 Level 2 Level 3 (in thousands) Money market funds $ 13,525 $ 13,525 $ — $ — Commercial paper 18,161 — 18,161 — Corporate bonds 20,966 — 20,966 — Asset-backed securities 16,027 — 16,027 — U.S. government securities 31,043 — 31,043 — Total cash equivalents and marketable debt securities $ 99,722 $ 13,525 $ 86,197 $ — As of January 31, 2022 Total Level 1 Level 2 Level 3 (in thousands) Money market funds $ 20 $ 20 $ — $ — Total cash equivalents and marketable debt securities $ 20 $ 20 $ — $ — 3. Inventories Inventories at October 31, 2022 and January 31, 2022 consisted of the following: As of October 31, 2022 January 31, 2022 (in thousands) Work-in-progress $ 33,128 $ 25,844 Finished goods 12,267 19,375 Total $ 45,395 $ 45,219 4. Property and Equipment, Net Depreciation expense was approximately $ 1.0 million and $ 0.7 million for the three months ended October 31, 2022 and 2021, respectively, and was approximately $ 2.8 million and $ 1.9 million for the nine months ended October 31, 2022 and 2021, respectively. Property and equipment at October 31, 2022 and January 31, 2022 consisted of the following: As of October 31, 2022 January 31, 2022 (in thousands) Computer hardware and software $ 19,038 $ 16,488 Tools and equipment 7,769 7,532 Furniture and fixtures 1,310 1,243 Leasehold improvements 3,178 2,942 Construction in progress 1,166 1,060 32,461 29,265 Less: accumulated depreciation and amortization ( 21,708 ) ( 19,131 ) Total property and equipment, net $ 10,753 $ 10,134 5. Intangible Assets, Net As of October 31, 2022, intangible assets primarily consist of software licenses as well as developed technology, customer relationships and trade name that were acquired from business combinations. 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 October 31, 2022, $ 2.3 million was recorded in accrued and other current liabilities and $ 1.0 million was recorded in other long-term liabilities in the condensed consolidated balance sheets. 11 The components of intangible assets as of October 31, 2022 and January 31, 2022 were as follows : As of October 31, 2022 As of January 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (in thousands) Software licenses $ 31,220 $ ( 15,571 ) $ 15,649 $ 22,093 $ ( 11,331 ) $ 10,762 Developed technology 21,200 ( 3,175 ) 18,025 21,200 ( 904 ) 20,296 Customer relationships 13,200 ( 1,467 ) 11,733 13,200 ( 367 ) 12,833 Trade name 2,500 ( 357 ) 2,143 2,500 ( 89 ) 2,411 Total intangible assets, net $ 68,120 $ ( 20,570 ) $ 47,550 $ 58,993 $ ( 12,691 ) $ 46,302 During the nine months ended October 31, 2022, there were approximately $ 10.0 million of software licenses purchased and approximately $ 0.9 million of software licenses retired. The amortization expense associated with software licenses was approximately $ 2.0 million and $ 1.6 million for the three months ended October 31, 2022 and 2021, respectively, and was approximately $ 5.2 million and $ 4.6 million for the nine months ended October 31, 2022 and 2021, respectively. The amortization expense associated with acquisition-related intangible assets, including developed technology, customer relationships and trade name, was approximately $ 1.2 million and $ 0.1 million for the three months ended October 31, 2022 and 2021, respectively, and was $ 3.6 million and $ 0.1 million for the nine months ended October 31, 2022 and 2021, respectively. The expected future amortization expense related to these intangible assets as of October 31, 2022 is as follows: As of October 31, 2022 Fiscal Year (in thousands) 2023 (3 months remaining) $ 2,448 2024 8,932 2025 7,437 2026 5,930 2027 5,711 Thereafter 17,092 Total future amortization expenses: $ 47,550 Intangible assets are tested for impairment at least annually, in the fourth fiscal quarter, or more frequently if events or changes in circumstances indicate that the assets may be impaired. There were no intangible asset impairments for the three and nine months ended October 31, 2022 and 2021, respectively. 6. Accrued and Other Current Liabilities Accrued and other current liabilities at October 31, 2022 and January 31, 2022 consisted of the following: As of October 31, 2022 January 31, 2022 (in thousands) Accrued employee compensation $ 20,195 $ 30,044 Accrued product development costs 13,533 10,523 Software license liabilities, current 2,332 6,001 Other accrued liabilities 7,501 5,496 Total accrued and other current liabilities $ 43,561 $ 52,064 The timing of SoC development and payments to outside foundries resulted in the fluctuation of accrued product development costs. Approximately $ 10.9 million of annual bonus was paid in the first quarter of fiscal year 2023, of which $ 3.2 million was paid in cash and $ 7.7 million was settled with restricted stock units. 12 7. Leases The Company enters into various operating leases for its worldwide facilities. In the second quarter of fiscal year 2023, the Company extended leases for its Shenzhen office and one of its facilities in Santa Clara, California for an additional two years beginning October 1, 2022 to September 30, 2024 . For the lease extensions, the Company recorded an increase to the operating lease right-of-use (ROU) assets and corresponding operating lease liabilities of approximately $ 0.8 million in the condensed consolidated balance sheets. For the three months ended October 31, 2022, the Company modified a lease liability for its Italy office lease and recorded a reduction to the ROU assets and corresponding operating lease liabilities of approximately $ 0.2 million in the condensed consolidated balance sheets. Operating lease expense was approximately $ 1.0 million and $ 0.9 million for the three months ended October 31, 2022 and 2021, respectively, and was approximately $ 2.8 million and $ 2.5 million for the nine months ended October 31, 2022 and 2021, respectively. The Company's short-term leases and finance leases were not material as of October 31, 2022 and January 31, 2022, respectively . Supplemental cash flow information related to the operating leases is as follows: Three Months Ended Nine Months Ended October 31, 2022 October 31, 2022 (in thousands) Cash paid for operating leases included in operating cash flows $ 1,095 $ 3,254 Supplemental non-cash information related to lease liabilities arising from obtaining right-of-use assets $ 78 $ 248 Leased assets changes arising from lease modifications $ ( 235 ) $ 575 As of October 31, 2022, the weighted average remaining lease term is 2.85 years, and the weighted average discount rate is 3.59 percent. Future minimum lease payments for the lease liabilities are as follows : As of October 31, 2022 Fiscal Year (in thousands) 2023 (3 months remaining) $ 919 2024 3,664 2025 3,355 2026 1,363 2027 319 Thereafter 113 Total future annual minimum lease payments 9,733 Less: interest ( 411 ) Total lease liabilities $ 9,322 8. Other Long-Term Liabilities Other long-term liabilities at October 31, 2022 and January 31, 2022 consisted of the following: As of October 31, 2022 January 31, 2022 (in thousands) Unrecognized tax benefits, including interest $ 9,684 $ 9,313 Deferred tax liabilities, non-current 1,536 1,769 Software license liabilities, non-current 1,004 1,674 Other long-term liabilities 4 7 Total other long-term liabilities $ 12,228 $ 12,763 13 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 October 31, 2022 and January 31, 2022, respectively. Ordinary shares As of October 31, 2022 and January 31, 2022, a total of 200,000,000 ordinary shares were authorized. In the first quarter of fiscal year 2023, the Company added 466,285 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 February 1 st of each fiscal year, or (iii) an amount determined by the Company’s Board of Directors or a duly authorized committee of the Board of Directors. As of October 31, 2022 and January 31, 2022, the following ordinary shares were reserved for future issuance under the Company’s equity plans and ESPP: As of October 31, 2022 January 31, 2022 Shares reserved for options, restricted stock and restricted stock units under equity plans 6,120,269 7,461,541 Shares reserved for ESPP 2,986,403 2,624,704 Stock repurchase program On May 27, 2022 , the Company ’ s Board of Directors approved an extension of the current share repurchase program for an additional twelve months ending June 30, 2023 . There were no ordinary shares repurchased in the nine months ended October 31, 2022. As of October 31, 2022, there was approximately $ 49.0 million available for repurchases under the current repurchase program through June 30, 2023. 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. 10. Stock-based Compensation The following table presents the classification of stock-based compensation for the periods indicated: Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 (in thousands) Stock-based compensation: Cost of revenue $ 360 $ 391 $ 1,071 $ 1,073 Research and development 18,741 13,725 53,775 36,444 Selling, general and administrative 9,000 7,937 27,205 22,750 Total stock-based compensation $ 28,101 $ 22,053 $ 82,051 $ 60,267 As of October 31, 2022, approximately $ 2.4 million of stock-based compensation expense was accrued and reflected in accrued and other current liabilities in the condensed consolidated balance sheets. Total unrecognized compensation cost related to unvested stock options at October 31, 2022 was $ 18.7 million and is expected to be recognized over a weighted-average period of 2.02 years. Total unrecognized compensation cost related to unvested restricted stock units at October 31, 2022 was $ 213.7 million and is expected to be recognized over a weighted-average period of 2.59 years. In April 2022, the Company’s Compensation Committee of the Board of Directors approved the acceleration of vesting of 35,703 shares of unvested equity awards associated with the departure of Mr. Casey Eichler, who was the Company’s Chief Financial Officer until March 2022. As a result, there was approximately $ 1.7 million of additional stock-based compensation expense, net recognized in fiscal year 2023. 14 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Stock Options: Volatility — — — 51 % Risk-free interest rate — — — 0.98 % Expected term (years) — — — 5.27 Dividend yield — — — 0 % Employee stock purchase plan awards: Volatility 72 % 54 % 81 % 57 % Risk-free interest rate 3.78 % 0.05 % 2.32 % 0.06 % Expected term (years) 0.5 0.5 0.5 0.5 Dividend yield 0 % 0 % 0 % 0 % The following table summarizes stock option activities for the period indicated: 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, 2022 619,322 $ 40.08 Granted — — — Exercised ( 79,880 ) 30.79 $ 4,696 Forfeited ( 7,995 ) 49.19 Expired ( 1,418 ) 19.81 Outstanding at October 31, 2022 530,029 41.40 4.42 $ 8,605 Exercisable at October 31, 2022 392,266 $ 43.51 3.47 $ 5,417 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 October 31, 2022 was $ 54.73 , 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 restricted stock unit activities for the period indicated: Weighted- Average Grant-Date Shares Fair Value Unvested at January 31, 2022 2,651,135 $ 85.41 Granted 1,499,374 74.42 Vested ( 1,258,895 ) 69.81 Forfeited ( 77,346 ) 101.36 Unvested at October 31, 2022 2,814,268 $ 86.40 As of October 31, 2022, the aggregate intrinsic value of unvested restricted stock units was $ 154.0 million. 15 11. Net Income (Loss) Per Ordinary Share The following table sets forth the computation of basic and diluted income (loss) per ordinary share for the periods indicated: Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 (in thousands, except share and per share data) Numerator: Net income (loss) $ ( 19,809 ) $ 756 $ ( 54,281 ) $ ( 17,218 ) Denominator: Weighted-average ordinary shares - basic 38,582,584 36,792,187 38,185,421 36,391,676 Effect of potentially dilutive securities: Employee stock options — 327,417 — — Restricted stock units — 1,921,723 — — Employee stock purchase plan — 4,947 — — Weighted-average ordinary shares - diluted 38,582,584 39,046,274 38,185,421 36,391,676 Net income (loss) per ordinary share: Basic $ ( 0.51 ) $ 0.02 $ ( 1.42 ) $ ( 0.47 ) Diluted $ ( 0.51 ) $ 0.02 $ ( 1.42 ) $ ( 0.47 ) The following weighted-average potentially dilutive securities were excluded from the computation of diluted income (loss) per ordinary share as their effect would have been antidilutive: Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Options to purchase ordinary shares 314,645 13,399 351,595 269,713 Restricted stock units 1,408,315 51 1,549,473 1,105,083 Employee stock purchase plan 10,231 3,446 10,899 9,010 1,733,191 16,896 1,911,967 1,383,806 12. Income Taxes The following table provides details of income taxes for the periods indicated: Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 (in thousands) Loss before income taxes $ ( 18,697 ) $ ( 804 ) $ ( 49,323 ) $ ( 16,089 ) Provision (benefit) for income taxes 1,112 ( 1,560 ) 4,958 1,129 Effective tax rate ( 6.0 )% 194.2 % ( 10.1 )% ( 7.0 )% The Company recorded an income tax provision of $ 1.1 million and an income tax benefit $ 1.6 million for the three months ended October 31, 2022 and 2021, respectively. The Company recorded an income tax provision of $ 5.0 million and $ 1.1 million for the nine months ended October 31, 2022 and 2021, respectively. The increase in income tax expense for the three and nine months ended October 31, 2022 was primarily due to a decrease in the U.S. federal research tax credit, a decrease in tax benefits from excess stock-based compensation deductions, and an increase in non-deductible stock-based compensation, partially offset by a decrease in the proportion of profits generated in higher tax jurisdictions. 16 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 2021 remain open to examination by U.S. federal tax authorities. The tax years 2009 to 2021 remain open to examination by U.S. state tax authorities. The tax years 2015 to 2021 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 October 31, 2022, the gross amount of unrecognized tax benefits was approximately $ 31.5 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. The Inflation Reduction Act of 2022 (“IRA”) was enacted on August 16, 2022. The IRA applies to tax years beginning after December 31, 2022 and introduces a 15 % minimum tax for corporations whose average annual adjusted financial statement income for any consecutive three-tax-year period preceding the tax year exceeds $ 1 billion. The tax also applies to U.S. members of a non-U.S. parented group if the group satisfies the $ 1 billion threshold and the U.S. members have adjusted financial statements income of $ 100 million or more. It also introduced a 1 % excise tax on the fair market value of stock repurchases made by certain corporations after December 31, 2022 and several tax credits and incentives. The Company does not expect a material impact to its financial statements from these new tax laws. 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 manufacturing purchase commitments 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 October 31, 2022 and January 31, 2022, total manufacturing purchase commitments were approximately $ 47.9 million and $ 71.5 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 October 31, 2022, an approximately $ 2.5 million loss was recognized in the condensed consolidated balance sheets from adverse purchase commitments. There were no material loss liabilities recorded in the condensed consolidated balance sheets from adverse purchase commitments as of January 31, 2022. 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 October 31, 2022 and January 31, 2022, respectively. Other Matters From time to time, the Company is subject to commercial disputes, employment issues, intellectual property claims and litigation, in the ordinary course of its business . Although the ultimate disposition of asserted claims cannot be predicted with certainty, it is the Company’s belief that the outcome of any such claims, either individually or on a combined basis, will not have a material adverse effect on its consolidated financial position. The results of any litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. 17 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 October 31, Nine Months Ended October 31, 2022 2021 2022 2021 (in thousands) Taiwan $ 54,443 $ 59,412 $ 157,884 $ 153,135 Asia Pacific 15,292 21,323 54,691 60,122 Europe 5,295 4,432 18,167 11,837 North America other than United States 5,748 5,984 15,020 13,117 United States 2,318 1,016 8,523 3,416 Total revenue $ 83,096 $ 92,167 $ 254,285 $ 241,627 As of October 31, 2022, substantially all of the Company’s property and equipment were located in the Asia Pacific region, United States and Europe with approximate net amounts of $ 5.3 million, $ 3.9 million and $ 1.6 million, respectively. Major Customers For the three and nine months ended October 31, 2022, the customers representing 10% or more of revenue and accounts receivable were WT and Chicony, which accounted for approximately 61.6 % and 10.7 % of total revenue for the three months ended October 31, 2022, respectively, and accounted for approximately 59.1 % and 11.6 % of total revenue for the nine months ended October 31, 2022, respectively. For the three and nine months ended October 31, 2021, the customers representing 10% or more of revenue and accounts receivable were WT and Chicony, which accounted for approximately 63.1 % and 13.4 % of total revenue for the three months ended October 31, 2021, respectively, and accounted for approximately 62.7 % and 14.9 % of total revenue for the nine months ended October 31, 2021, respectively. Accounts receivable with WT and Chicony were approximately $ 25.4 million and $ 8.9 million, respectively, as of October 31, 2022. 18