What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-08-02 · 84 added, 72 removed, 187 unchanged (45% of the section changed)

35 unchanged sentences

The following table presents a reconciliation of net income, the most directly comparable GAAP measure, to Adjusted EBITDA for the periods indicated:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Adjusted EBITDA reconciliation:

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The following tables set forth our results of operations for the periods indicated:

Three Months Ended June 30,

Three Months Ended September 30,

(In thousands)

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Other income, net

Net (loss) income before income taxes

Income tax (expense) benefit

Net (loss) income and comprehensive (loss) income

Six Months Ended June 30,

Net income (loss) before income taxes

Income tax expense

Net income (loss) and comprehensive income (loss)

Nine Months Ended September 30,

(In thousands)

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Other income, net

Net (loss) income before income taxes

Income tax (expense) benefit

Net (loss) income and comprehensive (loss) income

Comparison of the three months ended June 30, 2024 and 2023

We generated 87% and 79% of our revenue from products sold to distributors for the three months ended June 30, 2024 and 2023, respectively.

Net income (loss) before income taxes

Income tax expense

Net income (loss) and comprehensive income (loss)

Comparison of the three months ended September 30, 2024 and 2023

We generated 84% and 79% of our revenue from products sold to distributors for the three months ended September 30, 2024 and 2023, respectively.

In addition to selling our products to our distributors, we maintain a direct selling relationship, for strategic purposes, with several key customer accounts.

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Our revenue by region and by type of revenue for the periods indicated were as follows (in thousands):

Three Months Ended June 30,

Three Months Ended September 30,

North America

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Three Months Ended

September 30,

(Dollars in thousands)

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Total revenue

Total revenue decreased by $5.1 million, or 32.5%, from $15.7 million during the three months ended June 30, 2023 to $10.6 million during the three months ended June 30, 2024.

The decrease was primarily due to a decrease in product sales of $3.5 million due to timing of customer demand, and a decrease in licensing revenue generated from our RAD-Hard projects of $1.5 million, along with a decrease of $0.1 million in other revenue related to foundry services.

Total revenue decreased by $4.4 million, or 26.6%, from $16.5 million during the three months ended September 30, 2023 to $12.1 million during the three months ended September 30, 2024.

The decrease was primarily due to a decrease in product sales of $3.1 million due to timing of customer demand and a decrease in licensing, royalty, patent, and other revenue of $1.3 million.

Licensing, royalty, patent, and other revenue is a highly variable revenue item characterized by a small number of transactions annually with revenue based on size and terms of each transaction.

Our best estimate of royalty revenue earned is made throughout the year for royalty contracts with an annual performance period, with an annual adjustment recognized for actual sales in the first quarter of each fiscal year.

Licensing, royalty, patent, and other revenue decreased by $1.6 million, or 68.0% from $2.3 million during the three months ended June 30, 2023, to $0.7 million during the three months ended June 30, 2024.

The decrease was driven by a decrease of $1.5 million in licensing revenue generated from our RAD-Hard projects, along with a decrease of $0.1 million of other revenue related to foundry services.

Licensing, royalty, patent, and other revenue decreased by $1.3 million, or 43.6% from $2.9 million during the three months ended September 30, 2023, to $1.7 million during the three months ended September 30, 2024.

The decrease was driven by licensing revenue generated from our RAD-Hard projects of $0.7 million, a decrease of $0.5 million in other revenue related to professional services and a decrease of $0.1 million in royalty revenue.

Cost of Sales and Gross Margin

Three Months Ended

September 30,

(Dollars in thousands)

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Total cost of sales

Cost of product sales decreased by $0.9 million, or 14.0%, from $6.1 million during the three months ended June 30, 2023, to $5.2 million during the three months ended June 30, 2024.

The decrease was primarily due to a reduction in product sales, partially offset by increased yields on our toggle products.

Cost of licensing, royalty, patent, and other revenue decreased by $0.3 million, or 60.1% from $0.5 million during the three months ended June 30, 2023, to $0.2 million during the three months ended June 30, 2024.

Cost of product sales decreased by $0.2 million, or 2.9%, from $5.9 million during the three months ended September 30, 2023, to $5.8 million during the three months ended September 30, 2024.

The decrease was primarily due to a reduction in product sales and increased yields on our toggle products.

Cost of licensing, royalty, patent, and other revenue decreased by $0.2 million, or 37.8% from $0.6 million during the three months ended September 30, 2023, to $0.4 million during the three months ended September 30, 2024.

The decrease was primarily due to a decrease in licensing costs related to labor and materials associated with the progression of our RAD-Hard projects.

Gross margin decreased from 58.4% during the three months ended June 30, 2023, to 49.0% during the three months ended June 30, 2024.

Gross margin decreased as a result of a decrease in product sales and licensing revenue, partially offset by increased yields on our toggle products.

Gross margin decreased from 60.2% during the three months ended September 30, 2023, to 49.2% during the three months ended September 30, 2024.

Gross margin decreased as a result of a shift in product mix, a decrease in FAB loadings, and a decrease in licensing revenue partially offset by increased yields on our toggle products.

Operating Expenses

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Three Months Ended

September 30,

(Dollars in thousands)

2 unchanged sentences

Research and Development Expenses.

Research and development expenses increased by $0.7 million, or 27.7%, from $2.7 million during the three months ended June 30, 2023, to $3.5 million during the three months ended June 30, 2024.

Research and development expenses increased by $0.7 million, or 27.3%, from $2.7 million during the three months ended September 30, 2023, to $3.3 million during the three months ended September 30, 2024.

The primary driver of research and development expenses relates to our new Extended Serial Peripheral Interface (xSPI) family of STT-MRAM products.

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Three Months Ended

September 30,

(Dollars in thousands)

2 unchanged sentences

General and Administrative Expenses.

General and administrative expenses decreased by $0.3 million, or 7.2%, from $3.5 million during the three months ended June 30, 2023, to $3.2 million during the three months ended June 30, 2024.

General and administrative expenses decreased by $0.6 million, or 14.5%, from $3.9 million during the three months ended September 30, 2023, to $3.3 million during the three months ended September 30, 2024.

The decrease is primarily due to reduced professional services costs.

Three Months Ended

September 30,

(Dollars in thousands)

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Sales and Marketing Expenses.

Sales and marketing expenses remained consistent at $1.3 million during the three months ended June 30, 2024 and 2023, respectively.

Sales and marketing expenses remained consistent at $1.3 million during the three months ended September 30, 2024 and 2023, respectively.

Sales and marketing expenses relate primarily to compensation costs and contract labor.

Other Income (Expense), Net

Other Income, Net

Three Months Ended

September 30,

(Dollars in thousands)

Other income, net

Other income, net decreased by $1.9 million in income for the three months ended June 30, 2024.

The change was primarily due to an employee retention tax credit of $2.0 million during the three months ended June 30, 2023, partially offset by interest income.

Comparison of the six months ended June 30, 2024 and 2023

We generated 78% and 82% of our revenue from products sold to distributors for the six months ended June 30, 2024 and 2023, respectively.

Other income, net increased by $3.9 million, or 857.7%, from $0.5 million during the three months ended September 30, 2023, to $4.4 million during the three months ended September 30, 2024.

The change was primarily due to $4.0 million recorded as other income on the condensed statements of operations and comprehensive (loss) income.

Comparison of the nine months ended September 30, 2024 and 2023

We generated 80% and 81% of our revenue from products sold to distributors for the nine months ended September 30, 2024 and 2023, respectively.

Our revenue by region and by type of revenue for the periods indicated were as follows (in thousands).

Six Months Ended June 30,

Nine Months Ended September 30,

North America

Total revenue

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2 unchanged sentences

Total revenue

Total revenue decreased by $5.5 million, or 18.1%, from $30.6 million during the six months ended June 30, 2023 to $25.1 million during the six months ended June 30, 2024.

The decrease was primarily due to a decrease in product sales of $6.4 million due to timing of customer demand, offset by an increase in licensing revenue generated from our RAD-Hard projects of $0.7 million, along with an increase of $0.2 million in other revenue related to foundry services.

Licensing, royalty, patent and other revenue is a highly variable revenue item characterized by a small number of transactions annually with revenue based on size and term of each transaction Our best estimate of royalty revenue earned is made through the year, with an annual adjustment recognized for actual sales in the first quarter of each fiscal year.

Licensing, royalty, patent, and other revenue increased by $0.9 million, or 26.7%, from $3.4 million during the six months ended June 30, 2023, to $4.3 million during the six months ended June 30, 2024.

The increase was driven by an increase of $0.7 million in licensing revenue generated from our RAD-Hard projects, along with an increase of $0.2 million of other revenue related to foundry services.

Total revenue decreased by $9.9 million, or 21.0%, from $47.1 million during the nine months ended September 30, 2023 to $37.2 million during the nine months ended September 30, 2024.

The decrease was primarily due to a decrease in product sales of $9.5 million due to timing of customer demand and a decrease of $0.4 million in licensing, royalty, patent and other revenue.

Licensing, royalty, patent and other revenue is a highly variable revenue item characterized by a small number of transactions annually with revenue based on size and term of each transaction.

Our best estimate of royalty revenue earned is made through the year, with an annual adjustment recognized for actual sales in the first quarter of each fiscal year.

Licensing, royalty, patent, and other revenue decreased by $0.4 million, or 5.7%, from $6.3 million during the nine months ended September 30, 2023, to $6.0 million during the nine months ended September 30, 2024.

The decrease was driven by a decrease of $0.3 million in other revenue related to professional services and a decrease of $0.1 million in royalty revenue.

Cost of Sales and Gross Margin

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

2 unchanged sentences

Total cost of sales

Cost of product sales decreased by $1.0 million, or 8.0%, from $12.2 million during the six months ended June 30, 2023, to $11.2 million during the six months ended June 30, 2024.

Cost of product sales decreased by $1.1 million, or 6.3%, from $18.1 million during the nine months ended September 30, 2023, to $17.0 million during the nine months ended September 30, 2024.

The decrease was primarily due to a reduction in product sales and increased yields on our toggle products.

Cost of licensing, royalty, patent, and other revenue decreased by $0.3 million, or 40.3% from $0.8 million during the six months ended June 30, 2023, to $0.5 million during the six months ended June 30, 2024.

Cost of licensing, royalty, patent, and other revenue decreased by $0.5 million, or 39.2%, from $1.4 million during the nine months ended September 30, 2023, to $0.8 million during the nine months ended September 30, 2024.

The decrease was due to a decrease in licensing costs related to labor and materials associated with the progression of our RAD-Hard projects.

Gross margin decreased from 57.6% during the six months ended June 30, 2023, to 53.4% during the six months ended June 30, 2024.

Gross margin decreased as a result of a decrease in product sales and increased yields on our toggle products, partially offset by increased licensing revenue.

Gross margin decreased from 58.5% during the nine months ended September 30, 2023, to 52.0% during the nine months ended September 30, 2024.

Gross margin decreased as a result of a shift in product mix, a decrease in FAB loadings, and a decrease in licensing revenue partially offset by increased yields on our toggle products.

Operating Expenses

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Personnel-related expenses, including salaries, benefits, bonuses and stock-based compensation, are among the most significant components of each of our operating expense categories.

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in thousands)

2 unchanged sentences

Research and Development Expenses.

Research and development expenses increased by $1.0 million, or 16.4%, from $5.9 million during the six months ended June 30, 2023, to $6.9 million during the six months ended June 30, 2024.

Research and development expenses increased by $1.7 million, or 19.8%, from $8.6 million during the nine months ended September 30, 2023, to $10.2 million during the nine months ended September 30, 2024.

The primary driver of research and development expenses relates to our new xSPI family of STT-MRAM products.

Six Months Ended June 30,

Nine Months Ended September 30,

(Dollars in thousands)

2 unchanged sentences

General and Administrative Expenses.

General and administrative expenses increased by $0.6 million, or 8.4%, from $6.7 million during the six months ended June 30, 2023, to $7.3 million during the six months ended June 30, 2024.

The increase is primarily due to increases related to stock-based compensation and professional services.

Six Months Ended June 30,

General and administrative expenses remained consistent at $10.7 million during both the nine months ended September 30, 2023 and 2024.

Nine Months Ended September 30,

(Dollars in thousands)

2 unchanged sentences

Sales and Marketing Expenses.

Sales and marketing expenses remained consistent at $2.6 million during the six months ended June 30, 2024 and 2023, respectively.

Sales and marketing expenses decreased by $0.1 million, or 1.7%, from $4.0 million during the nine months ended September 30, 2023, to $3.9 million during the nine months ended September 30, 2024.

The decrease was primarily due to a decrease in variable compensation costs and contract labor.

Interest Expense

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

Interest expense

Interest expense decreased by $0.1 million, or 100.0%, from $0.1 million during the six months ended June 30, 2023, to $0 during the six months ended June 30, 2024.

The decrease was due to having no outstanding balance under our 2019 Credit Facility that we paid off in full in March 2023, resulting in no interest incurred during the six months ended June 30, 2024.

Other Income (Expense), Net

Six Months Ended

Interest expense decreased by $0.1 million, or 100.0%, from $0.1 million during the nine months ended September 30, 2023, to zero during the nine months ended September 30, 2024.

The decrease was due to having no outstanding balance under our 2019 Credit Facility that we paid off in full in March 2023, resulting in no interest incurred during the nine months ended September 31, 2024.

Other Income, Net

Nine Months Ended

September 30,

(Dollars in thousands)

Other income, net

Other income, net decreased by $1.6 million in income for the six months ended June 30, 2024.

The change was primarily due to an employee retention tax credit of $2.0 million during the six months ended June 30, 2023, partially offset by interest income.

Other income, net increased by $2.3 million, or 82.1%, from $2.8 million during the nine months ended September 30, 2023, to $5.2 million during the nine months ended September 30, 2024.

The increase was primarily due to $4.0 million recorded as other income on the condensed statements of operations and comprehensive (loss) income partially offset by the employee retention tax credit of $2.0 million recorded during the nine months ended September 30, 2023.

Liquidity and Capital Resources

As of June 30, 2024, we had $36.8 million of cash and cash equivalents, compared to $36.9 million as of December 31, 2023.

As of June 30, 2024, we have no outstanding debt as we paid off our 2019 Credit Facility in full in March 2023.

As of September 30, 2024, we had $39.6 million of cash and cash equivalents, compared to $36.9 million as of December 31, 2023.

As of September 30, 2024, we have no outstanding debt as we paid off our 2019 Credit Facility in full in March 2023.

We believe our cash and cash equivalents are sufficient to meet our anticipated capital requirements in the next 12 months.

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The following table summarizes our cash flows for the periods indicated (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

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Cash Flows From Operating Activities

During the six months ended June 30, 2024, cash provided by operating activities was $0.4 million , which consisted of net loss of $2.7 million , non-cash charges of $4.4 million and changes of net operating assets and liabilities of $1.2 million .

The non-cash charges consisted of stock-based compensation of $3.6 million and depreciation and amortization of $0.8 million .

The change in our net operating assets and liabilities was primarily due to a decrease in accounts receivable of $1.4 million due to timing of cash receipts for outstanding balances, a decrease in prepaid and other current assets of $0.5 million , and a decrease in inventory of $0.4 million offset by a decrease in accounts payable of $0.6 million , a decrease in accrued liabilities of $2.6 million and a decrease in deferred revenue of $ 0.3 million .

During the six months ended June 30, 2023, cash provided by operating activities was $7.5 million, which consisted of net income of $4.6 million, non-cash charges of $3.2 million and changes of net operating assets and liabilities of $0.3 million.

During the nine months ended September 30, 2024, cash provided by operating activities was $3.3 million , which consisted of net loss of $0.4 million , non-cash charges of $6.3 million and changes of net operating assets and liabilities of $2.6 million .

The non-cash charges primarily consisted of stock-based compensation of $5.1 million, depreciation and amortization of $1.2 million .

The change in our net operating assets and liabilities was primarily due to an increase in accounts payable of $0.2 million , an increase in contract obligations of $3 .0 million, an increase in prepaid and other current assets of $3.6 million, a decrease in accounts receivable of $0.1 million due to timing of cash receipts for outstanding balances, and a decrease in accrued liabilities of $2.2 million.

During the nine months ended September 30, 2023, cash provided by operating activities was $11.1 million, which consisted of net income of $7.1 million, non-cash charges of $4.8 million and changes of net operating assets and liabilities of $0.8 million.

The non-cash charges primarily consisted of stock-based compensation of $3.7 million, depreciation and amortization of $0.9 million, and a loss on prepayment and termination of our 2019 Credit Facility of $0.2 million.

The change in our net operating assets and liabilities was primarily due to an increase in inventory of $0.7 million, a decrease in accounts payable of $0.7 million, a decrease in accrued liabilities of $0.7 million primarily due to timing of variable compensation costs, and a decrease in deferred revenue of $0.1 million, offset by a decrease in accounts receivable of $1.6 million due to timing of cash receipts for outstanding balances and a decrease in prepaid and other current assets of $0.2 million.

The change in our net operating assets and liabilities was primarily due to a decrease in accounts receivable of $0.6 million due to timing of cash receipts for outstanding balances, an increase in inventory of $2.0 million to meet anticipated production volumes, a decrease in prepaid and other current assets of $0.4 million, an increase in accounts payable of $0.6 million, a decrease in accrued liabilities of $0.1 million, and a decrease in deferred revenue of $0.3 million.

Cash Flows From Investing Activities

Cash used in investing activities during the six months ended June 30, 2024, was $1.2 million, reflecting purchases of manufacturing equipment.

Cash used in investing activities during the six months ended June 30, 2023 was $1.0 million, reflecting $1.1 million for the purchases of manufacturing equipment offset by a nominal amount in proceeds received on the sale of property and equipment.

Cash used in investing activities during the nine months ended September 30, 2024 was $1.3 million for the purchase of manufacturing equipment.

Cash used in investing activities during the nine months ended September 30, 2023 was $1.1 million primarily for the purchase of manufacturing.

Cash Flows From Financing Activities

Cash provided by financing activities during the six months ended June 30, 2024, was $0.6 million, consisting of proceeds from the exercise of employee stock options and purchase of shares under our employee stock purchase plan.

Cash used in financing activities during the six months ended June 30, 2023, was $2.5 million, consisting mainly of $2.8 million of payments to pay off our 2019 Credit Facility, offset by $0.3 million in proceeds from the exercise of employee stock options.

Cash provided by financing activities during the nine months ended September 30, 2024, was $0.7 million, consisting of proceeds from the exercise of employee stock options and purchase of shares under our employee stock purchase plan.

Cash used in financing activities during the nine months ended September 30, 2023, was $1.9 million, consisting mainly of $2.8 million of payments to pay off our 2019 Credit Facility, offset by $0.9 million in proceeds from the exercise of employee stock options and purchase of shares under our employee stock purchase plan.

Critical Accounting Policies and Significant Judgements and Estimates

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Evaluation of disclosure controls and procedures.

Our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of June 30, 2024, the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2024.

There have been no changes in our internal control over financial reporting that occurred during the six months ended June 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of September 30, 2024, the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2024.

There have been no changes in our internal control over financial reporting that occurred during the nine months ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control.

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In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

We intend to continue to monitor and upgrade our internal controls as necessary or

appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

PART II—O THER INFORMATIO N

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