What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-23 compared with 2024-07-24 · 105 added, 106 removed, 281 unchanged (43% of the section changed)

65 unchanged sentences

We did not have comparable project-based revenue in 2020.

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, 2023 or first-half 2024.

Similarly, in second-quarter 2021, we generated 13% of our 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, 2023 or in the first three quarters of 2024.

Seasonality and Pricing

3 unchanged sentences

System sales tend to be higher in the fourth quarter and lower in the first quarter, we believe due to the availability of residual funding for capital expenditures prior to the end of many end users’ fiscal years.

We did not see these seasonal trends in 2023 and may not see them in 2024.

Whether and when these trends will return is not clear.

We do expect continued quarter-to-quarter revenue variability due to changing macroeconomic conditions.

We did not see these seasonal trends in 2023.

We do expect continued quarter-to-quarter revenue variability due to changing macroeconomic conditions and timing of program launches that could impact seasonal trends in the future.

Results of Operations

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except percentages)

Income (loss) from operations

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

Loss from operations

Three months ended September 30, 2024 compared with three months ended September 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.

The endpoint IC revenue increase was driven primarily by 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

Gross margin increased, due primarily to lower excess and obsolescence charges in the current-year period compared to the prior-year period.

Loss from operations decreased, due primarily to increased gross profit, partially offset by increased operating expenses.

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

Nine months ended September 30, 2024 compared with nine months ended September 30, 2023

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

2 unchanged sentences

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,

Loss from operations decreased, due primarily to increased gross profit and a slight decrease in operating expenses.

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

5 unchanged sentences

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

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.

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

Endpoint IC revenue increased $32.4 million, due to a $38.2 million increase in shipment volumes, partially offset by a $5.8 million decrease from lower ASP due primarily to product mix, and to a lesser extent, short-term pricing incentives on legacy products.

Systems revenue decreased $2.2 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.

Reader and gateway revenues decreased $1.0 million and $2.9 million, respectively and nonrecurring engineering revenue decreased by $0.4 million.

These decreases were partially offset by increases of $1.5 million and $0.6 million in reader IC and test and measurement solution revenue, respectively.

Nine months ended September 30, 2024 compared with nine months ended September 30, 2023

Endpoint IC revenue increased $51.3 million due to a $54.5 million increase in shipment volumes and a $15.0 million increase in licensing revenue that did not occur in the prior-year period, partially offset by a $18.2 million decrease in ASP due primarily to product mix shift, and to a lesser extent, short-term pricing incentives on legacy products.

Systems revenue decreased by $13.7 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.

Reader and gateway revenues decreased $7.9 million and $8.2 million, respectively, and nonrecurring engineering revenue decreased $0.8 million.

These decreases were partially offset by an increase of $3.5 million from test and measurement solutions revenue.

Gross Profit and Gross Margin

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except percentages)

5 unchanged sentences

as well as from inventory excess and obsolescence charges.

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

Three months ended September 30, 2024 compared with three months ended September 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 margin increased, due primarily to lower excess and obsolescence charges compared to the prior-year period.

Nine months ended September 30, 2024 compared with nine months ended September 30, 2023

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

2 unchanged sentences

Research and Development

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

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 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;

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

Research and development expense increased $3.9 million, due primarily to increases of $2.8 million in personnel expenses related to higher bonus achievement;

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

and $0.3 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;

partially offset by a decrease of $0.6 million in product development costs due to timing.

Nine months ended September 30, 2024 compared with nine months ended September 30, 2023

Research and development expense increased $5.5 million, due primarily to increases of $6.1 million in personnel expenses from higher bonus achievement and higher headcount;

$2.7 million in stock-based compensation expense primarily related to increased outstanding equity grants;

and $1.0 million in infrastructure costs;

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

partially offset by a decrease of $4.1 million in product development costs due to timing.

Sales and Marketing

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

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

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.

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

Sales and marketing expense was comparable for the periods with offsetting fluctuations.

Personnel expenses decreased resulting from a decrease in headcount, which was offset by higher bonus achievement and commissions.

Nine months ended September 30, 2024 compared with nine months ended September 30, 2023

Sales and marketing expense decreased $0.8 million, due primarily to decreases of $0.6 million in personnel expenses resulting from a decrease in headcount, partially offset by higher bonus achievement and commissions.

General and Administrative

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

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

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.

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

General and administrative expense decreased $1.1 million, due primarily to a decrease of $3.8 million in professional services related to legal fees.

This decrease was partially offset by increases of $1.5 million in personnel expenses related to higher bonus achievement and $1.0 million in stock compensation expense related to increased outstanding equity grants.

Nine months ended September 30, 2024 compared with nine months ended September 30, 2023

General and administrative expense decreased $6.1 million, due primarily to a decrease of $12.3 million in professional services related to legal fees and transaction expenses in the current year.

This decrease was offset by an increase of $3.5 million in personnel expenses from higher bonus achievement, higher headcount and higher taxes associated with equity vesting, and an increase of $2.4 million in stock-based compensation expense, from increased outstanding equity grants.

Amortization of Intangibles

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Amortization of intangibles

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

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

Amortization of intangibles decreased $0.9 million.

1 unchanged sentence

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.

Nine months ended September 30, 2024 compared with nine months ended September 30, 2023

Amortization of intangibles decreased $1.1 million.

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

1 unchanged sentence

Restructuring Costs

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Restructuring costs

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

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

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

Nine months ended September 30, 2024 compared with nine months ended September 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

1 unchanged sentence

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

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

Three months ended September 30, 2024 compared with three months ended September 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

Nine months ended September 30, 2024 compared with nine months ended September 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Income from settlement of litigation

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

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

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

Nine months ended September 30, 2024 compared with nine months ended September 30, 2023

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

1 unchanged sentence

Interest Expense

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

1 unchanged sentence

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

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

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

Interest expense was comparable for the periods.

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

Nine months ended September 30, 2024 compared with nine months ended September 30, 2023

Interest expense was comparable for the periods.

Income Tax Expense

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Income tax benefit

Income tax benefit (expense)

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

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.

Income tax expense increased $0.4 million and $0.7 million for the three and nine months ended September 30, 2024, respectively, compared to the prior-year periods due to changes in our estimated effective tax rate.

Non-GAAP Financial Measures

18 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

24 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

10 unchanged sentences

Liquidity and Capital Resources

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

As of September 30, 2024, we had cash, cash equivalents and short-term investments of $170.3 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, and money market funds.

As of September 30, 2024, we had working capital of $(2.0) million, down from $39.4 million as of June 30, 2024.

The decrease was driven by purchases of long-term investments in third-quarter 2024.

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.

In 2023, our principal uses of cash were increases in our inventory balance, our acquisition of Voyantic Oy and capital expenditures.

We believe, based on our current operating plan, that our existing cash, cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs for at least the next 12 months.

16 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

Operating Cash Flows

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.

For the nine months ended September 30, 2024, we generated $115.7 million of net cash from operating activities.

These net cash proceeds were due primarily to $96.9 million of net income adjusted for non-cash items and $18.8 million in working capital due primarily to higher accounts payable, accrued compensation and lower inventory, partially offset by higher accounts receivable.

For the nine months ended September 30, 2023, we used $50.8 million of net cash from operating activities.

This net cash usage was due primarily to $67.0 million in working capital due primarily to higher inventory and lower accounts payable and $16.2 million of net loss adjusted for non-cash items.

Investing Cash Flows

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.

For the nine months ended September 30, 2024, we used $148.7 million of net cash from investing activities.

This net cash usage was due to purchases of investments of $154.3 million, cash paid for equipment purchases of $13.0 million, partially offset by cash generated by investment maturities of $18.6 million.

For the nine months ended September 30, 2023, we generated $101.5 million of net cash from investing activities.

These net cash proceeds were due primarily to investment maturities of $127.5 million and investment sales of $13.4 million, partially offset by cash paid for the Voyantic Oy acquisition of $23.4 million and net property and equipment purchases of $16.0 million.

Financing Cash Flows

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

For the nine months ended September 30, 2024, we generated $11.9 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.

For the nine months ended September 30, 2023, we generated $7.9 million of net cash from financing activities.

These net cash proceeds were due primarily to $7.9 million from stock-option exercises and our employee stock purchase plan.

1 unchanged sentence

Our primary cash requirements are for operating expenses and capital expenditures.

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

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

Convertible Notes – As of September 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 June 30, 2024 total $27.8 million and comprise noncancelable commitments to purchase inventory.

Purchase Commitments – Purchase commitments as of September 30, 2024 total $32.9 million and comprise noncancelable commitments to purchase inventory.

Off-Balance-Sheet Arrangements

2 unchanged sentences

We have prepared our condensed consolidated financial statements in accordance with GAAP.

Our preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.

Our preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue,

expenses and related disclosures.

We evaluate our estimates and assumptions on an ongoing basis.

9 unchanged sentences

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

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

We had cash, cash equivalents and short-term investments of $170.3 million as of September 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.

16 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