ARTERIS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included under Part I, Item 1 in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year endedDecember 31, 2021 included in the 2021 Form 10-K. This discussion and analysis contains forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the heading "Risk Factors" in this Quarterly Report on Form 10-Q. Please also see the section under the heading "Cautionary Note Regarding Forward-Looking Statements" in the 2021 Form 10-K.
Unless the context otherwise requires, all references in this report to "we,"
"us," "our," the "Company," and "Arteris" refer to
Overview
We are a leading provider of interconnect and other intellectual property (IP) technology that manages the on-chip communications in System-on-Chip (SoC) semiconductor devices. Our products enable our customers to deliver increasingly complex SoCs that not only process data but are also able to make decisions. Growth in the total addressable market for our solutions is being driven by the addition of more processors, channels of memory access, machine learning sections, chiplets, additional input/output (I/Os) interface standards and other subsystems within SoCs. The growth in the numbers of these connected on-chip subsystems place an increasing premium on the interconnect IP capability to move data inside complex SoCs. We believe this increase in SoC complexity is creating a significant opportunity for sophisticated SoC system IP solutions which incorporate Network-on-Chip (NoC) interconnect IP, IP deployment software and NoC interface IP (consisting of peripheral data transport IP and control plane networks connected to NoC interconnect IPs). Our IP deployment solutions, which were significantly enhanced by our acquisition ofMagillem Design Services S.A. (Magillem) in 2020, complement our interconnect IP solutions by helping to automate not only the customer configuration of its NoC interconnect but also the process of integrating and assembling all of the customer's IP blocks into an SoC. Products incorporating our IP are used to carry most of the important data inside complex SoCs for sophisticated applications, including automated driving, artificial intelligence/machine learning (AI/ML), 5G and wireless communications, data centers, and consumer electronics. As ofMarch 31, 2022 , we had 227 full-time employees and offices in eight locations inthe United States ,France ,China ,South Korea andJapan . For the three months endedMarch 31, 2022 , we generated revenue of$11.8 million , net loss of$6.8 million , and net loss per share, basic and diluted of$0.22 . As ofMarch 31, 2022 , we had Annual Contract Value (as defined below) of$49.6 million . During the three months endedMarch 31, 2022 , we added seven Active Customers (as defined below) and our customers had 19 Design Starts (as defined below). 19
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Recent Developments
OnFebruary 21, 2022 , Arteris IP (Hong Kong ) Ltd. (AHK), a wholly-owned subsidiary of the Company, entered into a Share Purchase and Shareholders Agreement (the SPA) withSME Development (Shaoxing) Venture Fund, LLP , Jiaxing Luojia Chuanzhi Investment Partnership Enterprise (Limited Partnership), Gongqing City Guinie Zhuyu No. 3Investment Partnership (Limited Partnership) (the Investors) andNingbo Transchip Information Consulting Partnership (Limited Partnership) (Management Co). Following the consummation of the foregoing transactions, and subject to closing terms and conditions in the SPA, it is currently anticipated that the Company will hold a 40.321% equity interest in Transchip. We expect to benefit from this arrangement by way of expanding its customer and business relationships with Chinese entities in the automotive market. It also anticipates a potential longer-term benefit by way of investment returns on its minority equity interest.
Factors Affecting Our Business
We believe that the growth of our business and our future success are dependent upon many factors including those described under "Risk Factors" and elsewhere in this report, in addition to those described below. While each of these factors presents significant opportunities for us, these factors also pose challenges that we must successfully address in order to sustain the growth of our business and enhance our results of operations.
License Agreements with New and Existing Customers
Our ability to generate revenue from new license agreements, and the timing of such revenue, is subject to a number of factors, risks and contingencies. For new products, the time from initial development until we generate license revenue can be lengthy, typically between one and three years. In addition, because the selection process by our customers is typically lengthy and market requirements and alternative solutions available to customers for IP-based products change rapidly, we may be required to incur significant research and development expenditures in pursuit of new products over extended, multiyear periods of time with no assurance that our solutions will be successfully developed or ultimately selected by our customers. While we make efforts to observe market demand and market need trends, we cannot be certain that our investment in developing and testing new products will generate an adequate rate of return in the form of fees, royalties or other revenues, or any revenues. Moreover, the customer acquisition process has a typical duration of six to nine months; following this, a customer's chip design cycle is typically between one to three years and may be delayed due to factors beyond our control, which may result in our customer's product not reaching the market until long after we entered into a contract with such customer. Customers typically start shipping their products containing our interconnect IP solutions between one to five years following completion of their product design, known as mass production, at which point we start to receive royalties; this lasts for up to seven years depending on the market segment. Any significant delay in the ramp-up of volume production of the customer's products into which our product is designed could adversely affect our business due to delayed or significantly reduced revenues. Further, because the average selling prices (ASPs) of our products may decline over time, we consider new license agreements and new product launches to be critical to our future success and anticipate that for our newer products, we are and will remain highly dependent on market demand timing and revenue from new license agreements.
End Customer Product Demand and Market Conditions
Demand for our interconnect IP solutions and associated royalty revenue is
highly dependent on market conditions in the end markets in which our customers
operate. These end markets, which include the automotive, AI/ML, 5G
communications, data centers and consumer electronics sectors, are subject to a
number of factors including end-product acceptance and sales, competitive
pressures, supply chain issues and general market conditions. For example, our
revenue has been supported by the increased need for more complex SoCs to enable
sophisticated automated driving. If the demand in this market continues to grow,
we anticipate it will continue to have a positive impact on our revenue. In
contrast, if general market conditions deteriorate or other factors occur such
as supply chain issues resulting in fewer semiconductors utilizing our IP
solutions being available for sale, our revenue would be adversely affected.
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Terms of our Agreements with Customers
Our revenue from period to period can be impacted by the terms of the agreements we enter into with our customers. For example, in recent periods we have structured certain agreements with customers that include substantial up front licensing payments. As a result of how these contracts are structured and the revenue is recognized, our revenue in the three months endedMarch 31, 2022 may not be comparable to future periods if we do not enter into similar contractual agreements. Further, a meaningful percentage of our revenue is generated through royalty payments. Because the time between a new license agreement win and the customer's end product being sold can be substantial, with sales of the end product being subject to a number of factors outside our control, our revenue from royalties is difficult to predict. As a result of the foregoing, revenue may fluctuate significantly from period to period and any increase or decrease in such revenue may not be indicative of future period-to-period increases or decreases.
We believe our growth has been and will continue to be driven by technology trends in our end markets. For example, the requirements of smaller die size, lower power consumption, a higher frequency of operation and management of critical net latency in a timely and cost-effective manner for on-chip processing in the automotive, AI/ML, 5G and wireless communications, data center and consumer electronic markets has resulted in increased SoC design complexity for chips used in these markets. This trend in turn has created increased demand for in-licensing commercial semiconductor design IP, which in turn has positively impacted our revenue and growth. In order to address technological developments such as the above and expand our offerings, we have invested significantly in our research and development efforts. These investments, which included growth in engineering headcount, have resulted in substantially increased research and development expenses in recent periods. As we continue to invest in our technology and new product design efforts, we anticipate research and development expense will increase on an absolute basis and as a percentage of revenue in the near term. In the medium to longer term, however, while we expect to increase our research and development expense on an absolute basis, we expect this expense to reduce as a percentage of revenue.
We will continue to evaluate growth opportunities through acquisitions of other businesses, although there are currently no discussions with potential targets.
Cyclical Nature of the Semiconductor Industry
The semiconductor industry in which our customers operate is highly cyclical and is characterized by increasingly rapid technological change, product obsolescence, competitive pricing pressures, evolving standards, short product life cycles and fluctuations in product supply and demand. New technology may result in sudden changes in system designs or platform changes that may render some of our IP solutions obsolete and require us to devote significant research and development resources to compete effectively. Periods of rapid growth and capacity expansion are occasionally followed by significant market corrections in which our customers' sales decline, inventories accumulate and facilities go underutilized. During an expansion cycle, we may increase research and development hiring to add to our product offerings or spend more on sales and marketing to acquire new customers, such as during the recent cycle of expansion in which we increased the number of our engineers significantly. During periods of slower growth or industry contractions, our sales generally suffer due to a decrease in customers' Design Starts or in sales of our customers' products.
COVID-19 Impact
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a pandemic which has resulted in substantial global economic disruption and uncertainty. In response to the COVID-19 pandemic, the measures implemented by various authorities have caused us to change our business practices, including those related to where employees work, the distance between employees in our facilities, limitations on in-person meetings between employees and with customers, suppliers, service providers and stakeholders, as well as restrictions on business travel to domestic and international locations and to attend trade shows, technical conferences and other events. Although we have experienced, and may continue to experience, some impact on certain parts of our business as a result of governmental restrictions and other measures to mitigate the spread of COVID-19, our results of operations, cash flows and financial condition were not materially adversely impacted in the three months endedMarch 31, 2022 . 21
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We are unable to accurately predict the full impact that COVID-19 will have on our future results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures. Although we expect most of our employees to return to physical offices in the future, the nature and extent of that return is uncertain. We will continue to monitor health orders issued by applicable governments to ensure compliance with evolving domestic and global COVID-19 guidelines. For additional details, see the section titled "Risk Factors-Our business has been, and may continue to be, adversely affected by health epidemics, pandemics and other outbreaks of infectious disease, including the current COVID-19 pandemic."
Key Performance Indicators
We use the following key performance indicators to analyze our business performance and financial forecasts and to develop strategic plans, which we believe provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. These key performance indicators are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles inthe United States (GAAP), and may differ from similarly titled metrics or measures used by other companies, securities analysts, or investors.
Annual Contract Value
We define Annual Contract Value (ACV) for an individual customer agreement as the total fixed fees under the agreement divided by the number of years in the agreement term. Our total ACV is the aggregate ACVs for all our customers as measured at a given point in time. Total fixed fees includes licensing, support and maintenance and other fixed fees under IP licensing or software licensing agreements but excludes variable revenue derived from licensing agreements with customers, particularly royalties. ACV was$49.6 million and$38.1 million as ofMarch 31, 2022 and 2021, respectively. In addition, total ACV and trailing-twelve-months royalties and other revenue was$52.8 million and$41.8 million as ofMarch 31, 2022 and 2021, respectively. We monitor ACV to measure our success and believe the increase in the number shows our progress in expanding our customers' adoption of our platform.
Active Customers
We define Active Customers as customerswho have entered into a license agreement with us that remains in effect. The retention and expansion of our relationships with existing customers are key indicators of our revenue potential. We added seven Active Customers during both the three months endedMarch 31, 2022 and 2021. Our annual average customer retention rate, excluding IP deployment solutions, is 95% fromMarch 31, 2021 toMarch 31, 2022 .
Design Starts
We define Design Starts as when customers commence new semiconductor designs using our interconnect IP and notify us. Design Starts is a metric management uses to assess the activity level of our customers in terms of the number of new semiconductor designs that are started using our interconnect IP in a given period. Our interconnect IP and NoC interface IP customer base started a total of 19 and 20 designs during the three months endedMarch 31, 2022 and 2021, respectively. We believe that the number of Design Starts is an important indicator of the growth of our business and future royalty revenue trends.
Remaining Performance Obligations
We define Remaining Performance Obligations (RPO) as the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and contracted amounts that will be invoiced and recognized as revenue in future periods. The RPO amount is intended to provide visibility into future revenue streams. We expect RPO to fluctuate up or down from period to period for several possible reasons, including amounts, timing, and duration of customer contracts, as well as the timing of billing cycles for each contract. Our RPO was$60.5 million and$47.4 million as ofMarch 31, 2022 and 2021, respectively. 22
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Components of Our Results of Operations
Revenue: Our revenue is primarily derived from licensing intellectual property, licensing software, support and maintenance services, professional services, training services, and royalties. Our agreements often include other service elements including training and professional services which were immaterial for the three months endedMarch 31, 2022 and 2021, respectively. Our interconnect solutions product arrangements provide customers the right to software licenses, services, software updates and technical support. We enter into licensing arrangements with customers that typically range from two to three years and generally consist of delivery of a design license that grants the customer the right to use the IP to design a contractually defined number of products and stand-ready support services that provides the customer with our application engineer support services. We believe our customers derive a significant benefit from our engineer support services, which consist of our proprietary software tool (RTL), ongoing access to Corporate Application Engineers (CAE) and Field Application Engineers (FAE) that perform certain verifications including benchmark performance, simulations and ultimately, through RTL, instantiate designs into silicon over the design term.
The support services, including access to application engineering support services and the benefits of the RTL, are integral and fundamental to the customer's ability to derive its intended benefit from the IP.
CAEs are part of the product development team providing detailed requirements for engineering projects, working very closely with a customer's chief technology officer and the marketing department, and performing quality assurance testing of customer products prior to shipment to their customers.
FAEs provide assistance to the customer's engineering team in translating their desired SoC architecture into inputs for NoC IP configuration, assistance in optimizing the NoC configuration, answers to customer questions by the online support system or phone, constructive reviews of the progress achieved by the customer's development team and provision of advice on how to best use the licensed IP, performance of design reviews before customer project RTL freeze and tape-out to ensure the customer used the licensed IP configuration tooling as intended so that the RTL output meets customer requirements and expectations. FAE reviews of the customer's design are generally mandatory and consist of an understanding of the customer requirements and analysis of the adequacy of the contemplated IP considering the customer's desired architecture and design goals and objectives, taking into consideration bandwidth, coherence/non-coherence, latency, clock and timing, areas, and any and all constraints, as identified and specific to the design under review. Besides application engineer support services, support and maintenance services also consist of a stand-ready obligation to provide technical support and software updates over the support term. Generally, the first-year of technical support and software updates are bundled with and into the license fee with a customer option to renew additional years of support throughout the license term. However, we continue to provide technical support and software updates throughout the license term even if the customer does not renew these services in subsequent years, making the license term and support and maintenance term co-terminus. Revenues that are derived from the sale of a licensee's products that incorporate our IP are classified as royalty revenues. Royalty revenues are recognized during the quarter in which the sale of the product incorporating the IP occurs. Royalties are calculated either as a percentage of the revenues received by a licensee's sale of products incorporating the IP or on a per unit basis, as specified in the agreements with the licensees. For a majority of our royalty revenues, we receive the actual sales data from our customers after the quarter ends and account for it as unbilled receivables. When we do not receive actual sales data from the customer prior to the finalization of its financial statements, royalty revenues are recognized based on our estimation of the customer's sales during the quarter. Our deployment solutions product arrangements provide customers the right to software licenses, software updates and technical support. The software licenses are time-based licenses with terms generally ranging from one to three years. These arrangements generally have two distinct performance obligations that consist of transferring the licensed software and the support and maintenance service. Support and maintenance services consist of a stand-ready obligation to provide technical support and software updates over the support term. Revenue allocated to the software license is recognized at a point in time upon the later of the delivery date or the beginning of the license period, and revenue allocated to support services is recognized ratably over the support term.
Cost of revenue: Cost of revenue relates to costs associated with our licensing agreements and support and maintenance, including applicable FAE personnel-related costs including stock-based compensation, travel, and allocated overhead. We expect cost of revenue as a percentage of revenue to modestly decline over time due to productivity improvements of our FAE processes.
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Allocation of Overhead Costs: Overhead costs that are not substantially dedicated for use by a specific functional group are allocated based on headcount. Such costs include costs associated with office facilities, depreciation of property and equipment, certain support function personnel costs and other expenses.
Research and development (R&D) expenses: R&D expenses consist primarily of salaries and associated personnel-related costs, facilities expenses associated with research and development activities, third-party project-related expenses connected with the development of our intellectual property which are expensed as incurred, and stock-based compensation expense and other allocated costs. We expect R&D expenses to increase in absolute terms and as a percentage of revenue in the short term and to continue to increase in absolute terms in the medium to long term but decrease as a percentage of revenue as certain new products are launched. Sales and marketing (S&M) expenses: S&M expenses consist primarily of salaries, commissions, travel and other costs associated with S&M activities, as well as advertising, trade show participation, public relations, and other marketing costs, stock-based compensation expenses and other allocated costs. We expect S&M expenses to increase in absolute terms but decrease as a percentage of revenue due to productivity improvements of our sales processes. General and administrative (G&A) expenses: G&A expenses consist primarily of salaries for management and administrative employees, depreciation, insurance costs, accounting, legal and consulting fees, other professional service fees, expenses related to the development of corporate initiatives and facilities expenses associated with G&A activities and stock-based compensation expense, fees for directors and other allocated costs. We incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for additional G&A personnel, directors and officers insurance, investor relations, and professional services. We expect G&A expenses to increase as our business grows. In addition, we expect G&A expenses as a percentage of revenue to vary from period to period but generally decrease over the long term.
Interest and other expense, net: Interest and other expense, net consists primarily of gains and losses from foreign currency transactions.
Provision for income taxes: Our income tax provision consists primarily of income taxes in certain foreign jurisdictions in which we conduct business and includes foreign non-recoverable withholding taxes. We have a full valuation allowance against ourU.S. federal and state deferred tax assets as the realization of the full amount of these deferred tax assets is uncertain, including net operating loss carryforwards and tax credits related primarily to research and development. We expect to maintain this full valuation allowance until it becomes more likely than not that the deferred tax assets will be realized. 24
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Results of Operations
The following table summarizes our GAAP results of operations for the periods
presented. The results below are not necessarily indicative of results to be
expected for future periods.
Three Months Ended
March 31,
2022 2021
(in thousands)
Total revenue $ 11,755 $ 6,658
Cost of revenue 979 868
Gross profit 10,776 5,790
Operating expenses:
Research and development (1) 9,456 6,538
Sales and marketing (1) 3,921 2,448
General and administrative (1) 4,015 3,251
Total operating expenses 17,392 12,237
Loss from operations (6,616) (6,447)
Interest and other expense, net (81) (114)
Loss before provision for income taxes (6,697) (6,561) Provision for income taxes
123 156
Net loss $ (6,820) $ (6,717) (1)Includes stock-based compensation expense as follows:
Three Months Ended
March 31,
2022 2021
(in thousands)
Cost of revenue $ 96 $ 13
Research and development 1,144 199
Sales and marketing 271 24
General and administrative 798 97
Total stock-based compensation expense $ 2,309 $ 333 The following table summarizes our results of operations as a percentage of total revenue for each of the periods indicated:
Three Months Ended
March 31,
2022 2021
(as a percentage of total revenue)
Total revenue 100 % 100 %
Cost of revenue 8 13
Gross profit 92 87
Operating expenses:
Research and development 80 98
Sales and marketing 34 37
General and administrative 34 49
Total operating expenses 148 184
Loss from operations (56) (97)
Interest and other expense, net (1) (2)
Loss before provision for income taxes (57) (99)
Provision for income taxes 1 2
Net loss (58) % (101) %
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Comparison of the Three Months Ended
Revenue
Three Months Ended Change
March 31,
2022 2021 $ %
(dollars in thousands)
Licensing, support and maintenance $ 10,575 $ 6,161 $ 4,414 72 %
Variable royalties 984 490 494 101 %
Other 196 7 189 *
Total $ 11,755 $ 6,658 $ 5,097 77 %
* not meaningful
Growth in our licensing and support and maintenance continued with a 72%
increase during the three months ended March 31, 2022 compared to the three
months ended March 31, 2021 . The increase was primarily due to increase in new
license agreements with existing customers and the addition of new customers.
Cost of revenue
Three Months Ended Change
March 31,
2022 2021 $ %
(dollars in thousands)
Cost of revenue $ 979 $ 868 $ 111 13 %
Cost of revenue increased, $0.1 million , or 13%, to $1.0 million for the three
months ended March 31, 2022 , from $0.9 million for the three months ended March
31, 2021 . The increase in cost of revenue was primarily due to higher FAE
employee-related costs as a result of increased headcount.
Operating expenses
Three Months Ended Change
March 31,
2022 2021 $ %
(dollars in thousands)
Research and development
3,921 2,448 1,473 60 %
General and administrative 4,015 3,251 764 24 %
Total operating expenses $ 17,392 $ 12,237 $ 5,155 42 %
Research and development expenses
R&D expenses increased,$2.9 million , or 45%, to$9.5 million for the three months endedMarch 31, 2022 from$6.5 million for the three months endedMarch 31, 2021 . The increase in R&D expenses was primarily due to higher employee-related costs of$1.6 million mainly driven by increased engineering headcount as a result of growth and our investment in our interconnect technology and IP deployment software and an increase in allocated costs of$1.2 million primarily attributable to increased headcount. The increase in employee-related costs includes an increase in stock-based compensation expense of$0.9 million primarily related to our RSUs granted prior to our initial public offering (IPO), as the performance-based vesting condition applicable to such RSUs was satisfied upon the effectiveness of our IPO inOctober 2021 . 26
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Sales and marketing expenses
S&M expenses increased,$1.5 million , or 60%, to$3.9 million for the three months endedMarch 31, 2022 from$2.4 million for the three months endedMarch 31, 2021 . The increase in S&M expenses was primarily due to higher employee-related costs of$0.8 million mainly driven by higher headcount to support our continued growth and an increase in stock-based compensation expense related to our RSUs granted prior to our IPO, as the performance-based vesting condition applicable to such RSUs was satisfied upon the effectiveness of our IPO inOctober 2021 and an increase in allocated costs of$0.4 million primarily attributable to increased headcount.
General and administrative expenses
G&A expenses increased,$0.8 million , or 24%, to$4.0 million for the three months endedMarch 31, 2022 from$3.3 million for the three months endedMarch 31, 2021 . The increase in G&A expenses was primarily due to an increase in employee-related costs by$0.6 million driven by higher headcount to support our continued growth and an increased insurance expenses and other corporate expenses of$0.8 million to support the normal course of operating as a public company and our continued growth, partially offset by decrease in professional fees of$0.8 million . The increase in employee-related costs includes an increase in stock-based compensation expense of$0.7 million primarily related to our RSUs granted prior to our IPO, as the performance-based vesting condition applicable to such RSUs was satisfied upon the effectiveness of our IPO inOctober 2021 .
Interest and other expense, net
Three Months Ended Change
March 31,
2022 2021 $ %
(dollars in thousands)
Interest and other expense, net $ (81) $ (114) $ 33 29 %
Interest and other expense, net remained at
Provision for income taxes
Three Months Ended Change
March 31,
2022 2021 $ %
(dollars in thousands)
Provision for income taxes $ 123 $ 156 $ (33) (21) %
Provision for income taxes for the three months ended March 31, 2022 was $0.1
million , compared to $0.2 million for the three months ended March 31, 2021 . The
decrease in our income tax expense was due to a change in the forecasted
geographic mix of worldwide earnings which are taxed at different statutory tax
rates, the impact of losses in jurisdictions which have full valuation
allowances, and a decrease in current year foreign withholding taxes. Foreign
withholding taxes are generally assessed on gross revenue generated, rather than
pre-tax income, in certain countries in which the Company does not file an
income tax return.
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Liquidity and Capital Resources
Since inception, we have financed operations primarily through proceeds received from payments received from our customers, the net proceeds from the sale of our common stock in the IPO as well as the net proceeds from the private issuance of our convertible preferred stock and common stock. As ofMarch 31, 2022 , we had$82.2 million in cash of which$4.8 million was held by our foreign subsidiaries. We believe our cash, available borrowing capacity and cash expected to be generated from operations will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments and other liquidity requirements associated with our existing operations for at least the next 12 months. If these resources are not sufficient to satisfy our liquidity requirements, we may be required to seek additional financing. If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, may contain covenants that significantly restrict our operations or our ability to obtain additional debt financing in the future. Any additional financing that we raise may contain terms that are not favorable to us or our stockholders. We cannot assure you that we would be able to obtain additional financing on terms favorable to us or our existing stockholders, or at all. See "Risk Factors -Risks Related to Our Business and Industry-Our ability to raise capital in the future may be limited and could prevent us from executing our growth strategy" in our 2021 Form 10-K for additional information and elsewhere in this report.
Cash Flows
The following table summarizes changes in our cash flows for the periods
indicated:
Three Months Ended
March 31,
2022 2021
(in thousands)
Net cash (used in) provided by operating activities
$ (283) $ (39) Net cash used in financing activities$ (1,945) $ (200) Operating Activities Cash flows from operating activities may vary significantly from period to period depending on a variety of factors including the timing of our receipts and payments. Our ongoing cash outflows from operating activities primarily relate to payroll-related costs, payments for professional services, obligations under our property leases and design tool licenses. Our primary source of cash inflows is receipts from our accounts receivable. The timing of receipts of accounts receivable from customers is based upon the completion of agreed milestones or agreed dates as set forth in the contracts. For the three months endedMarch 31, 2022 , net cash used in operating activities was$1.4 million primarily due to our net loss of$6.8 million , adjusted for non-cash charges of$2.7 million and$2.7 million changes in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a$5.7 million decrease in accounts receivable, partially offset by a$1.4 million increase in prepaid expenses and other assets and a$1.4 million decrease in accrued expenses and other current liabilities.
For the three months ended
Investing Activities
Net cash used in investing activities for the three months endedMarch 31, 2022 and 2021 was$0.3 million and$39 thousand , respectively, primarily attributable to payments of deferred transaction costs relating to investment in Transchip and purchases of property and equipment to support our office facilities. 28
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Financing Activities
Net cash used in financing activities for the three months endedMarch 31, 2022 was$1.9 million , primarily attributable to payments of contingent consideration for business acquisition of$1.6 million .
Net cash used in financing activities for the three months ended
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Estimates
Our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our financial condition, results of operations, and cash flows will be affected.
There have been no material changes to our critical accounting estimates as compared to those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our 2021 Form 10-K.
Recently Issued and Adopted Accounting Pronouncements
For more information regarding recently issued accounting pronouncements, see Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
JOBS Act
We are an emerging growth company, as defined in the Jumpstart Our Business Startups (JOBS) Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act for the adoption of certain accounting standards until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. See Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in the notes to our consolidated financial statements included on our 2021 Form 10-K. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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