What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-29 · 39 added, 80 removed, 171 unchanged (41% of the section changed)

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Year Ended December 31,

(in thousands)

Adjusted EBITDA reconciliation:

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Interest expense

Income tax (benefit) expense

Income tax benefit

Adjusted EBITDA

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New design wins in each successive quarter of 2024 were 31, 44, 50, and 53, respectively, compared to 66, 62, 37, and 52 in each successive quarter of 2023, respectively.

Effect of COVID-19 on our Business

The COVID-19 outbreak resulted in government authorities around the world implementing numerous measures to try to reduce the spread of COVID-19.

Overall, our business remained operational in the midst of COVID-19.

The United States Government has declared that it was no longer treating COVID-19 as a pandemic.

Since our business is

dependent on a global supply chain, we expect to continue to navigate the impact of COVID-19, particularly in some Asian countries.

We will continue to monitor the situation and take additional actions as warranted.

These actions may include further altering our operations in order to protect the best interests of our employees, customers and suppliers, and to comply with government requirements, while also planning and executing our business to best support our customers, suppliers, and partners.

The ultimate extent of the impact of COVID-19 on our business, results of operations and financial condition will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted.

See “Risk Factors” in Part II, Item 1A of this report for additional risks we face due to COVID-19.

Effect of Health-Related Outbreaks on Our Business

Our global operations expose us to risks arising from public health crises and health-related outbreaks.

These crises and outbreaks can adversely affect global economies and financial markets, which have the potential to negatively impact our operations and financial condition.

The ultimate extent of the impact of health-related events on our business, results of operations and financial condition will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted.

See “Risk Factors” in Part I, Item 1A of this report for additional risks we face due to health-related events.

Results of Operations

Below are factors we want to highlight for understanding our 2024 annual results and year-over-year comparison with proper historical perspective:

● The first half of 2023 was impacted by supply chain challenges that were overcome in the second half of the year as the industry reverted to pre-COVID-19 seasonal patterns.

● The first half of 2024 was impacted by supply chain challenges that were overcome in the second half of the year as the industry reverted to pre-health-related outbreak seasonal patterns.

● Our commitment to improving our manufacturing excellence enabled us to drive yield improvements within our internal and external foundries network to sustain and improve existing product margins.

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Total operating expenses

Income from operations

(Loss) income from operations

Interest expense

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Net income before income taxes

Income tax benefit (expense)

Net income and comprehensive income

Income tax benefit

Comparison of the Years Ended December 31, 2024 and 2023

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North America;

Europe, Middle East and Africa (EMEA).

and Europe, Middle East and Africa (EMEA).

We recognize revenue by geography based on the region in which our products are sold, and not to where the end products in which they are assembled are shipped.

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Total revenue

Total revenue increased by $3.8 million, or 6.3%, from $60.0 million during the year ended December 31, 2022, to $63.8 million during the year ended December 31, 2023.

The increase was primarily driven by the increase in licensing, royalty, patent, and other revenue of $5.7 million due to revenue recognized under our RAD-Hard projects.

This was offset by a decline in product sales due to volume shifts in customer demand of $1.9 million or 3.5%, from $55.0 million during the year ended December 31, 2022, to $53.1 million during the year ended December 31, 2023.

Total revenue decreased by $13.4 million, or 21.0%, from $63.8 million during the year ended December 31, 2023, to $50.4 million during the year ended December 31, 2024.

The decrease was primarily due to a decrease in product sales of $10.9 million due to timing of customer demand.

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.

We estimate royalty revenue earned throughout 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 $5.7 million, from $5.0 million during the year ended December 31, 2022, to $10.6 million during the year ended December 31, 2023.

The increase was primarily due to an increase in licensing revenues of $5.5 million from our contractual agreements with customers for the development of RAD-Hard products, along with an increase of $0.7 million of other revenue related to a contractual arrangement with a customer for the development of reliability models for strategic radiation hardened toggle MRAM, offset in part by a decrease of $0.5 million in royalty revenue.

Licensing, royalty, patent, and other revenue decreased by $2.4 million, from $10.6 million during the year ended December 31, 2023, to $8.2 million during the year ended December 31, 2024.

The decrease was primarily due to the progression of our contractual agreements with customers for the development of RAD-Hard products, along with the conclusion of a contractual arrangement with a customer for the development of reliability models for strategic radiation hardened toggle MRAM.

There were no patent sales during the year ended December 31, 2024.

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Cost of product sales decreased by $1.9 million, or 7.6%, from $24.7 million during the year ended December 31, 2023, to $22.8 million during the year ended December 31, 2024.

The decrease was primarily due to a reduction in product sales compared to the prior year.

Cost of licensing, royalty, patent, and other revenue increased by $0.9 million, or 96.9%, from $0.9 million during the year ended December 31, 2022, to $1.8 million during the year ended December 31, 2023.

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

Our gross margin increased from 56.6% during the year ended December 31, 2022, to 58.4% during the year ended December 31, 2023.

Our gross margin increased by offsetting increased pricing from suppliers with increased yields on our toggle products and increased licensing revenue to offset the decrease in product sales.

The change was primarily due to a reduction in product sales compared to the prior year, offset in part by increased yields on our toggle products.

Cost of licensing, royalty, patent, and other revenue decreased by $0.4 million, or 19.9%, from $1.8 million during the year ended December 31, 2023, to $1.5 million during the year ended December 31, 2024.

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

Our gross margin decreased from 58.4% during the year ended December 31, 2023, to 51.8% during the year ended December 31, 2024.

Our 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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Research and development expenses increased by $1.9 million, or 16.2%, from $11.8 million during the year ended December 31, 2023, to $13.7 million during the year ended December 31, 2024.

The increase was primarily due to higher expenses relating to the development and enhancement of our new xSPI family of STT-MRAM products and increases in share-based compensation.

The change was primarily due to the development and enhancement of our new Extended Serial Peripheral Interface (xSPI) family of STT-MRAM products, which offer high-performance, multiple I/O, SPI-compatibility and feature a high-speed, low pin count SPI compatible interface, and increases in share-based compensation.

Year Ended December 31,

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General and Administrative Expenses.

General and administrative expenses increased by $2.6 million, or 21.8%, from $11.7 million during the year ended December 31, 2022, to $14.3 million during the year ended December 31, 2023.

The increase was primarily due to increases in professional service costs, share-based compensation, and depreciation.

General and administrative expenses decreased by $0.2 million, or 1.1%, from $14.3 million during the year ended December 31, 2023, to $14.1 million during the year ended December 31, 2024.

The change was primarily driven by a reduction in professional services.

Year Ended December 31,

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Sales and marketing expenses increased by $0.1 million, or 1.9%, from $5.3 million during the year ended December 31, 2023, to $5.4 million during the year ended December 31, 2024.

The increase was primarily due to an increase in variable compensation costs and contract labor.

The change was primarily due to an increase in headcount and contract labor, partially offset by lower variable compensation costs.

Interest Expense

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Interest expense

Interest expense decreased by $0.2 million, or 77.0%, from $0.3 million during the year ended December 31, 2022, to $0.1 million during the year ended December 31, 2023.

The decrease was due to having no outstanding balance under our 2019 Credit Facility as we paid off the outstanding balance in full in March 2023, resulting in no interest incurred during the remainder of 2023 after the outstanding balance was paid in full.

Interest expense decreased by $0.1 million, or 100.0%, from $0.1 million during the year ended December 31, 2023, to zero during the year ended December 31, 2024.

The change was due to having no outstanding balance under our 2019 Credit Facility as we paid off the outstanding balance in full in March 2023, resulting in no interest incurred during 2024 after the outstanding balance was paid in full.

Other Income, Net

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Other income, net

Other income, net changed by $3.0 million, from $0.2 million of expense during the year ended December 31, 2022, to $3.2 million of income during the year ended December 31, 2023.

The increase was primarily due to the employee retention tax credit received during the second quarter of 2023 of $2.0 million, along with an increase in interest income earned on the money market cash account as a result of increased cash balances and increasing interest rates, offset by a loss on prepayment and termination of our 2019 Credit Facility.

Other income, net increased by $4.6 million, from $3.2 million during the year ended December 31, 2023, to $7.8 million during the year ended December 31, 2024.

The change was primarily due to other income of $6.1 million recognized from a strategic award received by the Company to develop a long-term plan to provide manufacturing services for aerospace and defense segments, a change in interest income earned on the money market cash account as a result of a change in cash balances, along with the non-recurrence of a loss on prepayment and termination of our 2019 Credit Facility, offset by non-recurrence of the employee retention tax credit of $2.0 million received during the second quarter of 2023.

Liquidity and Capital Resources

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Cash used in investing activities

Cash used in financing activities

Cash provided by (used in) financing activities

Cash Flows from Operating Activities

During the year ended December 31, 2024, cash provided by operating activities was $7.1 million, which consisted of net income of $0.8 million, non-cash charges of $8.4 million and changes in net operating assets and liabilities of $2.1 million.

The non-cash charges primarily consisted of stock-based compensation of $6.7 million and depreciation and amortization of $1.7 million.

The change in our net operating assets and liabilities was primarily due to an increase in contract obligations of $2.0 million due to contracts the Company entered into in the third quarter of 2024, an increase in accounts receivable of $0.2 million due to timing of cash receipts for outstanding balances, an increase in inventory of $0.7 million to meet anticipated production volumes, an increase in prepaid and other current assets of $0.3 million, an increase in other assets of $0.5 million, a decrease in accounts payable of $0.4 million, a decrease in accrued liabilities of $1.9 million, and a decrease in deferred revenue of $0.3 million.

During the year ended December 31, 2023, cash provided by operating activities was $13.1 million, which consisted of net income of $9.1 million , non-cash charges of $6.4 million and changes in net operating assets and liabilities of $2.3 million.

The non-cash charges primarily consisted of stock-based compensation of $5.0 million, depreciation and amortization of $1.2 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 accounts receivable of $0.9 million due to timing of cash receipts for outstanding balances, an increase in inventory of $1.7 million to meet anticipated production volumes, an increase in prepaid and other current assets of $0.4 million, an increase in other assets of $0.2 million, an increase in accounts payable of $0.5 million, an increase in accrued liabilities of $0.8 million, and a decrease in deferred revenue of $0.5 million.

During the year ended December 31, 2022, cash provided by operating activities was $9.5 million, which primarily consisted of net income of $6.1 million, adjusted by non-cash charges of $5.3 million and a decrease of $1.9 million in our net operating assets and liabilities.

The non-cash charges primarily consisted of stock-based compensation of $4.4 million, depreciation and amortization of $1.0 million, and non-cash interest expense of $0.1 million, offset by a gain on disposal of property and equipment of $0.2 million.

The change in our net operating assets and liabilities was primarily due to an increase of $2.5 million in accounts receivable due to an increased sales volume and timing of cash receipts for outstanding balances and a $0.3 million increase in inventory.

These were offset by an increase of $0.6 million in accounts payable due to timing of invoice due dates and a $0.2 million increase in lease liabilities.

increase in other assets of $0.2 million, an increase in accounts payable of $0.5 million, an increase in accrued liabilities of $0.8 million, and a decrease in deferred revenue of $0.5 million.

Cash Flows from Investing Activities

During the year ended December 31, 2024, cash used in investing activities was $3.1 million, which consisted of capital expenditures primarily for the purchase of manufacturing equipment and purchased software.

During the year ended December 31, 2023, cash used in investing activities was $1.4 million, which consisted of capital expenditures primarily for the purchase of manufacturing equipment offset by a nominal amount in proceeds received on the sale of property and equipment.

During the year ended December 31, 2022, cash used in investing activities was $2.6 million, which consisted of capital expenditures primarily for the purchase of manufacturing equipment and purchased software offset by a nominal amount in proceeds received on the sale of property and equipment.

Cash Flows from Financing Activities

During the year ended December 31, 2024, cash provided by financing activities was $1.1 million, which consisted of proceeds from stock option exercises and purchases of shares under our employee stock purchase plan.

During the year ended December 31, 2023, cash used in financing activities was $1.6 million, which primarily consisted of $2.8 million of payments to pay off our 2019 Credit Facility offset by $1.2 million in proceeds from stock option exercises and purchases of shares under our employee stock purchase plan.

During the year ended December 31, 2022, cash used in financing activities was $1.5 million, which primarily consisted of $2.4 million in payments on long-term debt offset by $0.9 million in proceeds from stock option exercises and purchases of shares under our employee stock purchase plan.

Credit Facilities

In May 2017, we executed a Loan and Security Agreement (2017 Credit Facility) with Silicon Valley Bank (SVB) for a $12.0 million term loan, which we subsequently amended in January 2019 and June 2019.

In August 2019, we executed an Amended and Restated Loan and Security Agreement (2019 Credit Facility), which amended and restated the 2017 Credit Facility, providing for a formula revolving line of credit (Line of Credit) and a term loan (2019 Term Loan) with SVB to refinance in full the outstanding principal balance of $8.0 million under the 2017 Credit Facility.

In July 2020, we executed the first amendment to the 2019 Credit Facility with SVB.

The amendment, among other things, extended the initial 12-month interest-only period for the term loan to a 16-month interest-only period and lowered the floor interest rate.

The floor interest rates for 2019 Term Loan and the Line of Credit Facility were reduced from 4.75% and 6.75% to 3.75% and 4.75%, respectively.

The amended Line of Credit allowed for a maximum draw of $5.0 million, subject to a formula borrowing base, has a two-year term and bears interest at a floating rate equal to the Wall Street Journal (WSJ) prime rate plus 1.5%, per annum, subject to a floor of 4.75%.

The Line of Credit required a commitment fee of 1.6% of the maximum availability of the Line of Credit, which was paid in August 2019 upon closing, and was accounted for as a debt discount.

The Line of Credit also provided for a termination fee equal to 1% of the maximum availability under the Line of Credit, which was due in case of a termination of the Line of Credit prior to the scheduled maturity date, and an unused facility fee equal to 0.125% per annum of the average unused portion of the Line of Credit, which is expensed as incurred.

The Line of Credit was set to mature on August 5, 2023.

The amended 2019 Term Loan provided for a $6.0 million term loan.

The amended 2019 Term Loan had a term of 46 months, and a 16-month interest-only period followed by 30 months of equal principal payments of $200,000 per month, plus accrued interest.

The 2019 Term Loan incurred interest at a floating rate equal to the WSJ prime rate minus 0.75%, subject to a floor of 3.75%.

A final payment of 7% of the original principal amount of the 2019 Term Loan was to be made when the 2019 Term Loan is prepaid or repaid, whether at maturity or as a result of a prepayment or acceleration or otherwise.

The additional payment, which is accounted for as a debt discount, was being accreted using the effective interest method.

The 2019 Term Loan had a prepayment fee equal to 2% of the total commitment, which was due only if the 2019 Term Loan was prepaid prior to the scheduled maturity date for any reason.

The 2019 Term Loan was to mature on June 1, 2023.

In conjunction with entering into the 2019 Credit Facility, on August 5, 2019, we and SVB amended and restated the warrant issued to SVB in connection with the first amendment to the 2017 Credit Facility, which was a warrant to purchase 9,375 shares of our common stock at an exercise price of $8.91 per share, to add an option by SVB to put the warrant back to us for $50,000 upon expiration or a liquidity event, to be prorated if SVB exercises a portion of the warrant.

The warrants were set to expire on July 6, 2023.

The warrant was classified as a liability and recorded at fair

value within other liabilities in our balance sheet.

Due to the put right, the warrant was subject to fair value remeasurement at each subsequent reporting date until the exercise or expiration of the warrant.

Any resulting change in the fair value of the warrant was to be recorded as other income, net, in our statements of income and comprehensive income.

The other income recognized for the years ended 2023 and 2022 related to the change in fair value of the warrant has been minimal and immaterial to the financial statements.

These warrants were extinguished as of December 31, 2023.

Collateral for the 2019 Credit Facility included all of our assets except for intellectual property.

We were required to comply with certain covenants under the 2019 Credit Facility, including requirements to maintain a minimum cash balance and availability under the Line of Credit, and restrictions on certain actions without the consent of the lender, such as limitations on our ability to engage in mergers or acquisitions, sell assets, incur indebtedness, or grant liens or negative pledges on our assets, make loans or make other investments.

Under these covenants, we were prohibited from paying cash dividends with respect to our capital stock.

The 2019 Credit Facility contained a material adverse effect clause which provides that an event of default will occur if, among other triggers, an event occurs that could reasonably be expected to result in a material adverse effect on our business, operations, or condition, or on our ability to perform our obligations under the 2019 Term Loan.

In March 2023, the 2019 Credit Facility, consisting of our Term Loan and Line of Credit, was paid in full, and there was no outstanding balance as of December 31, 2023.

We paid an early termination and prepayment fee of $170,000, which was recorded within other income, net, within the statements of income and comprehensive income for the year ended December 31, 2023.

We were in compliance with all covenants throughout the 2019 Credit Facility payoff date in March 2023.

The amortization of the debt issuance costs and accretion of the debt discount is included in interest expense within the statements of income and comprehensive income and included in non-cash interest expense within the statement of cash flows.

For additional information about the 2019 Credit Facility, see Note 6 in the accompanying Notes to Financial Statements in Part II, Item 8 of this Form 10-K.

Critical Accounting Policies and Significant Judgements and Estimates

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We concluded these contractual arrangements represent one arrangement and evaluated our promises to the customer and whether the performance obligations granted under the arrangement were distinct.

The licenses provided to the customer are not transferable, are of limited value without the promised development services, and the customer cannot benefit from the license agreements without the specific obligated services in the development subcontract, as there is strong interdependency between the licenses and the development subcontract.

Accordingly, we determined the

licenses were not distinct within the context of the contract and combined the license with other performance obligations.

The licenses provided to the customer are not transferable, are of limited value without the promised development services, and the customer cannot benefit from the license agreements without the specific obligated services in the development subcontract, as there is strong interdependence between the licenses and the development subcontract.

Accordingly, we determined the licenses were not distinct within the context of the contract and combined the license with other performance obligations.

As a result, we are recognizing revenue related to the performance obligations over time using the input method based on costs incurred to date relative to the total expected costs of the contract over the performance obligation period.

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Recent Accounting Pronouncements

See Note 2 in the accompanying Notes to Financial Statements in Part II, Item 8 of this Form 10-K for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.

See Note 2 in the accompanying Notes to Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.

Quantitative and Qualitative Disclosures About Market Risk

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

What changed 10-K

Item 7. Management’s Discussion and Analysis