What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-24 compared with 2024-04-24 · 130 added, 70 removed, 257 unchanged (44% of the section changed)

10 unchanged sentences

• our business model, strategic plans and product-development plans;

• the impact of any future health outbreak or pandemic, including a potential resurgence in Covid-19 cases, including on our business, operations and financial condition as well as on macroeconomic conditions;

• the impact of any future health outbreak or pandemic, including a potential resurgence of Covid-19 on our business, operations and financial condition as well as on macroeconomic conditions;

• our future financial performance, including our average selling prices, or ASPs, gross margins and the dependency of our future financial performance on macroeconomic conditions;

45 unchanged sentences

Enterprises have significantly adopted RAIN in retail apparel, our largest market, and SC&L, but the rate of adoption and unit growth rates have been uneven and unpredictable.

From 2010 to 2023, our overall endpoint IC sales volumes increased at a compounded annual growth rate of 26%;

From 2010 to 2023, our overall endpoint IC sales volumes increased at a 26% compounded annual growth rate;

however, we have experienced uneven growth rates in various periods.

5 unchanged sentences

Similarly, in 2021, we generated 13% of our quarterly revenue from a project-based gateway deployment for RAIN-based self-checkout and loss prevention at a large Europe-based global retailer.

We did not have comparable project-based revenue in 2022 or 2023.

We did not have comparable project-based revenue in 2022, 2023 or first-half 2024.

Seasonality and Pricing

We typically negotiate pricing with most of our endpoint IC OEMs with an effective date of the first quarter of the calendar year.

In the past, this negotiation typically resulted in reduced revenue and gross margins in the first quarter compared to prior periods, which then normalized in subsequent quarters as we reduced costs and adjusted product mix by migrating those OEMs and end users to newer, lower-cost products.

In the past, this negotiation typically resulted in reduced revenue and gross margins in the first quarter compared to prior periods, which then normalized in subsequent quarters as we reduced costs and adjust product mix by migrating those OEMs and end users to newer, lower-cost products.

Endpoint IC volumes tend to be lower in the fourth quarter than in the third quarter.

5 unchanged sentences

The following table presents our results of operations for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except percentages)

Loss from operations

Three months ended March 31, 2024 compared with three months ended March 31, 2023

Revenue decreased, due primarily to lower endpoint IC and systems revenue.

Gross profit decreased due to the lower revenue which was partially offset by lower cost of revenue.

The endpoint IC revenue decrease was driven primarily by lower average ASP due to higher concentration of revenue from our 300mm products and lower shipment volumes when compared to the prior year period.

The systems revenue decrease was driven primarily by lower revenue from readers, gateways and reader ICs, partially offset by increased revenue from test and measurement solutions.

Gross margin decreased, due primarily to increased production costs on lower production volumes and revenue over the prior year period.

Loss from operations increased, due primarily to decreased gross profit and increased operating expenses.

The operating expense increase was due primarily to higher restructuring costs and amortization of intangibles, both of which we did not have in the prior year period.

This increase was partially offset by a decrease in general and administrative expenses.

Three Months Ended March 31,

Income (loss) from operations

Three months ended June 30, 2024 compared with three months ended June 30, 2023

Revenue and gross profit increased, due primarily to higher endpoint IC revenue partially offset by lower systems revenue.

The endpoint IC revenue increase was driven primarily by licensing revenue as well as higher endpoint IC shipment volumes when compared to the prior-year period.

Systems revenue decreased, due primarily to lower shipment volumes.

Gross margin increased, due primarily to the high-margin licensing revenue contribution, slightly offset by a decrease in product margins due to revenue mix between endpoint ICs and systems.

Income from operations increased, due primarily to increased gross profit and decreased operating expenses.

The operating expense decrease was due to lower general and administrative costs, sales and marketing costs and amortization of intangibles, partially offset by higher research and development costs.

Six months ended June 30, 2024 compared with six months ended June 30, 2023

Revenue and gross profit increased, due primarily to higher endpoint IC revenue partially offset by lower systems revenue.

The endpoint IC revenue increase was driven primarily by licensing revenue as well as higher endpoint IC shipment volumes when compared to the prior-year period.

Systems revenue decreased, due primarily to lower shipment volumes.

Gross margin increased, due primarily to the high-margin licensing revenue contribution.

Loss from operations decreased, due primarily to increased gross profit and decreased operating expenses.

The operating expense decrease was due primarily to lower general and administrative costs and sales and marketing costs, partially offset by higher research and development and restructuring costs.

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Total revenue

We currently derive substantially all our revenue from sales of endpoint ICs, reader ICs, readers, gateways and test and measurement solutions.

We currently derive substantially all our revenue from sales of endpoint ICs, reader ICs, readers, gateways, test and measurement solutions and licensing.

We sell our endpoint ICs and test and measurement solutions primarily to inlay manufacturers;

2 unchanged sentences

We expect endpoint IC sales to represent the majority of our revenue for the foreseeable future.

Three months ended March 31, 2024 compared with three months ended March 31, 2023

Endpoint IC revenue decreased $5.5 million due to a $3.0 million decrease from average ASP and a $2.5 million decrease from lower shipment volumes.

The ASP decrease was due primarily to higher concentration of revenue from our 300mm products.

Systems revenue decreased $3.5 million, due primarily to an overall decrease in shipment volumes.

Readers, gateways and reader ICs revenue decreased $3.6 million, $1.5 million and $1.9 million, respectively, partially offset by increases of $3.3 million from test and measurement solutions revenue.

Three months ended June 30, 2024 compared with three months ended June 30, 2023

Endpoint IC revenue increased $24.5 million, due to a $15.0 million increase in licensing revenue and a $17.7 million increase in shipment volumes, partially offset by a $8.2 million decrease from lower ASP due primarily to a product mix shift within the 300mm products, and to a lesser extent, short term special pricing incentives on legacy products.

The product mix shift within the 300mm products was due primarily to higher contribution from authentication ICs in prior year.

Systems revenue decreased $8.0 million, due primarily to a decrease in shipment volumes.

Reader and gateway revenues decreased $3.4 million and $3.9 million, respectively, and non-recurring engineering revenue decreased $0.5 million.

These decreases were partially offset by an increase in reader IC revenue due to increased shipment volumes.

Six months ended June 30, 2024 compared with six months ended June 30, 2023

Endpoint IC revenue increased $18.9, million due to a $15.0 million increase in licensing revenue that did not occur in the prior-year period and a $15.2 million increase in shipment volumes, partially offset by a $11.3 million decrease from lower ASP due primarily to a product mix shift within the 300mm products, and to a lesser extent, short term special pricing incentives on legacy products.

The product mix shift within the 300mm products was due primarily to higher contribution from authentication ICs in prior year.

Systems revenue decreased by $11.5 million due primarily to a decrease in shipment volumes.

Reader revenue decreased $6.9 million, gateway revenue decreased $5.4 million, reader IC revenue decreased $1.6 million and nonrecurring engineering revenue decreased $0.5 million.

The decrease was partially offset by an increase of $2.9 million from test and measurement solutions revenue.

Gross Profit and Gross Margin

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except percentages)

5 unchanged sentences

as well as from inventory excess and obsolescence charges.

Three months ended March 31, 2024 compared with three months ended March 31, 2023

Gross profit decreased, due primarily to decreased endpoint IC and systems revenue, partially offset by decreased cost of revenue.

Gross margin decreased, due primarily to increased production costs on decreased revenue over the prior year period.

These decreases were partially offset by increased direct product margins on systems.

Three months ended June 30, 2024 compared with three months ended June 30, 2023

Gross profit increased, due primarily to increased endpoint IC revenue, partially offset by decreased systems revenue.

Gross margin increased, due primarily to high-margin licensing revenue recognized in the second quarter of 2024 that did not occur in the prior-year period, slightly offset by a decrease in product margins due to revenue mix between endpoint ICs and systems.

Six months ended June 30, 2024 compared with six months ended June 30, 2023

Gross profit increased, due primarily to increased endpoint IC revenue partially offset by decreased systems revenue.

Gross margin increased, due primarily to high-margin licensing revenue recognized in the year that did not occur in the prior year.

Operating Expenses

Research and Development

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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We expect research and development expense to increase in absolute dollars in future periods as we continue to focus on new product development and introductions.

Three months ended March 31, 2024 compared with three months ended March 31, 2023

Research and development expense was relatively flat compared to the prior year period.

Increases of $692,000 in stock-based compensation expense primarily related to increased outstanding equity grants, $638,000 in personnel expenses primarily from higher headcount, and $277,000 in infrastructure costs due to increased depreciation and software costs were offset by a decrease of $1.4 million in product development costs due to timing.

Three months ended June 30, 2024 compared with three months ended June 30, 2023

Research and development expense increased $1.5 million, due primarily to increases of $2.6 million in personnel expenses related to higher bonus achievement and higher taxes associated with equity vesting;

$0.7 million in stock-based compensation expense primarily related to increased outstanding equity grants;

and $0.4 million in infrastructure costs;

partially offset by a $2.0 million decrease in product development costs due to timing.

Six months ended June 30, 2024 compared with six months ended June 30, 2023

Research and development expense increased $1.6 million, due primarily to increases of $3.2 million in personnel expenses from higher bonus achievement, higher headcount primarily related to our acquisition of Voyantic and higher taxes associated with equity vesting;

$1.4 million in stock-based compensation expense primarily related to increased outstanding equity grants;

and $0.7 million in infrastructure costs;

partially offset by a $3.5 million decrease in product development costs due to timing.

Sales and Marketing

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

3 unchanged sentences

and an allocated portion of infrastructure costs which include occupancy, depreciation and software costs.

Three months ended March 31, 2024 compared with three months ended March 31, 2023

Sales and marketing expense increased $203,000, due primarily to increases of $270,000 in stock-based compensation expense primarily related to increased outstanding equity grants.

Three months ended June 30, 2024 compared with three months ended June 30, 2023

Sales and marketing expense decreased $0.8 million, due primarily to decreases in personnel expenses resulting from a decrease in headcount, partially offset by higher bonus achievement.

Six months ended June 30, 2024 compared with six months ended June 30, 2023

Sales and marketing expense decreased $0.6 million, due primarily to decreases of $0.5 million in personnel expenses resulting from a decrease in headcount, partially offset by higher bonus achievement.

General and Administrative

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

4 unchanged sentences

and an allocated portion of infrastructure costs which include occupancy, depreciation and software costs.

Three months ended March 31, 2024 compared with three months ended March 31, 2023

General and administrative expense decreased $2.2 million, due primarily to a decrease of $3.1 million in professional services due primarily to decreased legal expense.

This decrease was partially offset by increases of $566,000 in stock compensation expense due primarily to increased outstanding equity grants and $243,000 in personnel expenses primarily from higher headcount.

Three months ended June 30, 2024 compared with three months ended June 30, 2023

General and administrative expense decreased $2.8 million, due primarily to a decrease of $5.5 million in professional services related to decreased legal fees and transaction expenses in current year.

This decrease was partially offset by increases of $1.7 million in personnel expenses primarily from higher bonus achievement and higher taxes associated with equity vesting and $0.8 million in stock compensation expense due primarily to increased outstanding equity grants.

Six months ended June 30, 2024 compared with six months ended June 30, 2023

General and administrative expense decreased $5.0 million, due primarily to a decrease of $8.5 million in professional services due primarily to decreased legal fees and transaction expenses in the current year.

This decrease was offset by an increase of $2.0 million in personnel expenses from higher bonus achievement, higher headcount and higher taxes associated with equity vesting, as well as an increase of $1.4 million in stock-based compensation expense, due primarily to increased outstanding equity grants.

Amortization of Intangibles

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Amortization of intangibles

Three months ended March 31, 2024 compared with three months ended March 31, 2023

The increase in amortization expense relates to the intangibles acquired as part of our April 3, 2023 acquisition of Voyantic Oy, a global provider of RFID test and measurement solutions.

See Note 4 Goodwill and Intangible Assets for further details.

Three months ended June 30, 2024 compared with three months ended June 30, 2023

Amortization of intangibles decreased $1.7 million.

The decrease relates to the intangibles acquired as part of our April 3, 2023 acquisition of Voyantic Oy.

Certain intangible assets acquired had a useful life of less than 1 year, resulting in a higher amortization expense in the prior-year period.

Six months ended June 30, 2024 compared with six months ended June 30, 2023

Amortization of intangibles decreased $241,000.

The decrease relates to the intangibles acquired as part of our April 3, 2023 acquisition of Voyantic Oy.

Certain intangible assets acquired had a useful life of less than 1 year, resulting in a higher amortization expense in the prior-year period.

Restructuring Costs

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Restructuring costs

Three months ended March 31, 2024 compared with three months ended March 31, 2023

Three months ended June 30, 2024 compared with three months ended June 30, 2023

There were no restructuring costs for the three months ended June 30, 2024 and 2023.

Six months ended June 30, 2024 compared with six months ended June 30, 2023

The increase in restructuring costs relates to the restructuring we initiated on February 7, 2024.

1 unchanged sentence

Other Income, net

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

1 unchanged sentence

Other income, net comprises primarily interest income on our short-term investments.

Three months ended March 31, 2024 compared with three months ended March 31, 2023

Other income, net decreased from the prior period due to decreased interest income.

Three months ended June 30, 2024 compared with three months ended June 30, 2023

Other income, net increased from the prior period due to increased interest income given higher invested balances and higher interest rates.

Six months ended June 30, 2024 compared with six months ended June 30, 2023

Other income, net increased from the prior period due to increased interest income given higher invested balances and higher interest rates.

Income From Settlement of Litigation

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Income from settlement of litigation

Three months ended March 31, 2024 compared with three months ended March 31, 2023

The increase in income from settlement of litigation relates to the litigation settlement we reached with NXP on March 13, 2024.

Three months ended June 30, 2024 compared with three months ended June 30, 2023

There was no income from litigation for the three months ended June 30, 2024 and 2023.

Six months ended June 30, 2024 compared with six months ended June 30, 2023

The increase in income from settlement of litigation relates to the Settlement Agreement with NXP on March 13, 2024.

See Note 6, Commitments and Contingencies for further details.

Interest Expense

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

1 unchanged sentence

Interest expense comprises primarily cash interest and amortization of debt issuance costs on our debt.

Three months ended March 31, 2024 compared with three months ended March 31, 2023

Three months ended June 30, 2024 compared with three months ended June 30, 2023

Interest expense was comparable for the periods.

Six months ended June 30, 2024 compared with six months ended June 30, 2023

Interest expense was comparable for the periods.

Income Tax Expense

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Income tax expense (benefit)

Income tax benefit

We are subject to federal and state income taxes in the United States and foreign jurisdictions.

Income tax expense decreased $73,000 due to our estimated effective tax rate which incorporated the acquisition of Voyantic Oy.

Income tax expense decreased $0.3 million for the three and six months ended June 30, 2024 compared to the prior-year periods due to changes in our estimated effective tax rate after we acquired Voyantic Oy.

Non-GAAP Financial Measures

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The following table presents a reconciliation of net loss to adjusted EBITDA:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

7 unchanged sentences

Acquisition related expense

Purchase accounting adjustments

Income on settlement of litigation

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The following table presents a reconciliation of net loss to non-GAAP net income (loss):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

4 unchanged sentences

Acquisition related expense

Purchase accounting adjustments

Income on settlement of litigation

3 unchanged sentences

Liquidity and Capital Resources

As of March 31, 2024, we had cash, cash equivalents and short-term investments of $174.1 million, comprising cash deposits held at major financial institutions and short-term investments in a variety of securities, including U.S.

As of June 30, 2024, we had cash, cash equivalents and short-term investments of $220.2 million, comprising cash deposits held at major financial institutions and short-term investments in a variety of securities, including U.S.

government securities, treasury bills, corporate notes and bonds, commercial paper, asset-backed securities and money market funds.

As of March 31, 2024, we had working capital of $290.0 million.

As of June 30, 2024, we had working capital of $39.4 million.

Historically, we have funded our operations primarily through cash generated from operations and by issuing equity securities, convertible-debt offerings and/or borrowing under our prior senior credit facility.

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The following table shows a summary of our cash flows for the periods indicated:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

Net cash provided by (used in) operating activities

Net cash provided by investing activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Operating Cash Flows

For the three months ended March 31, 2024, we generated $60.1 million of net cash from operating activities.

For the six months ended June 30, 2024, we generated $105.6 million of net cash from operating activities.

These net cash proceeds were due primarily to $78.4 million of net income adjusted for non-cash items and $27.2 million in working capital due primarily to lower inventory.

For the six months ended June 30, 2023, we used $49.1 million of net cash from operating activities.

This net cash usage was due primarily to $65.2 million in working capital due primarily to higher inventory and accounts receivable offset by higher accounts payable and $16.1 million of net loss adjusted for non-cash items.

Investing Cash Flows

For the three months ended March 31, 2024, we generated $5.0 million of net cash from investing activities.

For the six months ended June 30, 2024, we generated $5.5 million of net cash from investing activities.

These net cash proceeds were due primarily to investment maturities of $13.0 million, partially offset by cash paid for equipment purchases of $7.6 million.

For the six months ended June 30, 2023, we generated $69.0 million of net cash from investing activities.

These net cash proceeds were due primarily to investment maturities of $92.4 million and investment sales of $13.4 million, respectively, partially offset by cash paid for the Voyantic Oy acquisition of $23.4 million and net property and equipment purchases of $13.2 million.

Financing Cash Flows

For the three months ended March 31, 2024, we generated $6.9 million of net cash from financing activities.

These net cash proceeds were due to stock-option exercises and our employee stock purchase plan.

For the six months ended June 30, 2024, we generated $8.8 million of net cash from financing activities.

These net cash proceeds were due to stock-option exercises and our employee stock purchase plan, offset by $4.6 million of cash paid for the earnout payment related to the Voyantic Oy acquisition.

For the six months ended June 30, 2023, we generated $5.8 million of net cash from financing activities.

These net cash proceeds were due primarily to $5.8 million from stock-option exercises and our employee stock purchase plan.

Cash Requirements and Contractual Obligations

1 unchanged sentence

Our operating expenses have generally increased as we invest in sales and marketing and in developing products and technologies that we believe have the potential to drive long-term business growth.

Convertible Notes – As of March 31, 2024 the principal balance outstanding on the 2021 Notes is $287.5 million.

Convertible Notes – As of June 30, 2024 the principal balance outstanding on the 2021 Notes is $287.5 million.

Refer to Note 7 of our Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for maturity date, stated interest rate and additional information on our 2021 Notes.

1 unchanged sentence

For additional information regarding our operating leases, see Note 11 of our Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2023.

Purchase Commitments – Purchase commitments as of March 31, 2024 total $17.6 million and consist of non-cancelable commitments to purchase inventory.

Purchase Commitments – Purchase commitments as of June 30, 2024 total $27.8 million and comprise noncancelable commitments to purchase inventory.

Off-Balance-Sheet Arrangements

9 unchanged sentences

We are exposed to market risks in the ordinary course of our business.

Some of these risks are related to fluctuations in interest rates.

Interest Rate Risk

3 unchanged sentences

We do not enter into investments for trading or speculative purposes.

We had cash, cash equivalents and short-term investments of $174.1 million as of March 31, 2024.

We had cash, cash equivalents and short-term investments of $220.2 million as of June 30, 2024.

Our investments are exposed to market risk due to fluctuations in prevailing interest rates, which may reduce the yield on our investments or their fair value.

12 unchanged sentences

dollars are included in other income, net on the consolidated statements of operations.

One of our European subsidiaries utilize Euro as their functional currency, which results in a translation adjustment that is included as a component of accumulated other comprehensive income.

One of our European subsidiaries utilize Euros as their functional currency, which results in a translation adjustment that we include as a component of accumulated other comprehensive income.

For any of the periods presented, we did not have material impact from exposure to foreign currency fluctuation.

1 unchanged sentence

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