This Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and other parts of this Quarterly Report on Form 10-Q
("Quarterly Report") contain forward-looking statements, within the meaning of
the safe harbor provisions under Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that involve risks and uncertainties. Forward-looking statements reflect current
expectations of future events based on certain assumptions and include any
statement that does not directly relate to any historical or current fact.
Forward-looking statements can also be identified by words such as "will,"
"believe," "could," "should," "would," "may," "anticipate," "intend," "plan,"
"estimate," "expect," "project" or the negative of these terms or other similar
expressions. Forward-looking statements are not guarantees of future performance
and our actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such differences
include, but are not limited to, those discussed in Part II, Item 1A of this
Report and in Part I, Item 1A of our Annual Report on Form 10-K for the year
ended December 31, 2020 under the heading "Risk Factors," The following
discussion should be read in conjunction with the audited consolidated financial
statements and notes thereto included in Part II, Item 8 of our Annual Report on
Form 10-K for the year ended December 31, 2020. We assume no obligation to
revise or update any forward-looking statements for any reason, except as
required by law.
Each of the terms the "Company," "Identiv," "we" and "us" as used herein refers
collectively to Identiv, Inc. and its wholly-owned subsidiaries, unless
otherwise stated.
Overview
Identiv is a global provider of secure identification and physical security.
We are leveraging our Radio Frequency Identification ("RFID") based physical
device-management expertise as well as our physical access, video and analytics
solutions to provide leading solutions as our customers, and our customers'
customers, embracing the Internet of Things ("IoT"). Customers in the technology
and mobility, consumer, government, healthcare, education and other sectors rely
on Identiv's identification and access solutions. Identiv's platform encompasses
RFID and Near-Field Communication ("NFC"), cybersecurity, and the full spectrum
of physical access, video, and audio security. We are bringing the benefits of
the IoT to a wide range of physical, connected items.
Identiv's mission is to digitally enable every physical thing and every physical
place on the planet. Our full continuum of security solutions is delivered
through our platform of RFID enabled devices, mobile, client/server, cloud, web,
dedicated hardware and software defined architectures. In doing so, we believe
that we will create smart physical security and a smarter physical world.
Segments
We have organized our operations into two reportable business segments,
principally by solution families: Identity and Premises. Our Identity segment
includes products and solutions enabling secure access to information serving
the logical access and cyber-security market, and protecting connected objects
and information using RFID embedded security. Our Premises segment includes our
solutions to address the premises security market for government and enterprise,
including access control, video surveillance, analytics, audio, access readers
and identities.
Factors Affecting Our Performance
Market Adoption
Our financial performance depends on the pace, scope and depth of end-user
adoption of our RFID products in multiple industries. That pace, scope and depth
accelerated during 2020 causing large fluctuations in our operating results. For
example, in 2019 our Identity segment experienced a reduction from 2018 overall
with modest gains in our RFID business offset by lower access card revenue.
During 2020, we saw several events that we believe are opening up the third wave
of RFID deployments which is occurring at a much faster pace of growth than
historically. We believe significant improvement in chip capabilities at lower
costs, combined with the incorporation of the full NFC Data Exchange Format
("NDEF") protocol by Apple in its iPhone 12 and iOS 14 has accelerated the
opportunities for product engineers to integrate RFID into their products to
create new and more engaging customer experiences, product reliability and
performance. As the market hit this pivot point, we expanded both our capacity
and technical leadership. We track growth indicators including design wins,
customer launches and technology launches. We have made investments in our
technology, world class quality and automation, and we believe that our
competitive advantages will continue to drive growth.
We believe the underlying, long-term trend is continued RFID adoption by
multiple verticals. We also believe that expanding use cases fosters adoption
across verticals and into other markets. In addition, we do not have any
significant concentration of customers so we believe that our demand will
continue to be resilient to the loss of any individual customer or application.
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If RFID market adoption, and adoption of our products specifically, does not
meet our expectations then our growth prospects and operating results will be
adversely affected. If we are unable to meet end-user or customer volume or
performance expectations, then our business prospects may be adversely affected.
In contrast, if our RFID sales exceed expectations, then our revenue and
profitability may be positively affected.
Given the uncertainties of the specific timing of our new customer deployments,
we cannot assure you that we have appropriate inventory and capacity levels or
that we will not experience inventory shortfalls or overages in the future. We
mitigate those risks by being deeply embedded in our customers design cycle,
working with our chip partners on long lead time components, managing our
limited capital equipment needs within a short cycle and future proofing our
facilities with the most recent expansion to accommodate several scenarios for
growth potential.
If end users with sizable projects change or delay them, we may experience
significant fluctuation in revenue on a quarterly or annual basis, and we
anticipate that uncertainty to continue to characterize our business for the
foreseeable future.
Seasonality and Other Factors
In our business overall, we may experience variations in demand for our
offerings from quarter to quarter, and typically experience a stronger demand
cycle in the second half of our fiscal year. Sales of our physical access
control solutions and related products to U.S. Government agencies are subject
to annual government budget cycles and generally are highest in the third
quarter of each year. Sales of our identity readers, many of which are sold to
government agencies worldwide, are impacted by project schedules of government
agencies, as well as roll-out schedules for application deployments. Further,
this business is typically subject to seasonality based on differing commercial
and global government budget cycles. Lower sales are expected in the U.S. in the
first half, and in particular, the first quarter of the year, with higher sales
typically in the second half of each year. In Asia-Pacific, with fiscal
year-ends in March and June, order demand can be higher in the first quarter as
customers attempt to complete projects before the end of the fiscal year.
Accordingly, our net revenue levels in the first quarter each year often depend
on the relative strength of project completions and sales mix between our U.S.
customer base and our international customer base.
Purchasing of our Products and Services for U.S. Federal Government Security
Programs
In addition to the general seasonality of demand, overall U.S. Federal
Government expenditure patterns have a significant effect on demand for our
products due to the significant portion of revenue that are typically sourced
from U.S. Federal Government agencies. Drivers of growth included our technology
strength and proven security solutions, work from home mandates, and continued
strength in investments for security across a number of different agencies. We
believe that the success and growth of our business will continue through the
U.S. Federal Government focus on security and our successful procurement of
government business. If there are changes in government purchasing policies or
budgetary constraints there could be implications for our growth prospects and
operating results. If we are unable to meet end-user or customer volume or
performance expectations, then our business prospects may be adversely affected.
Effects of the COVID-19 Pandemic on our Business.
In March 2020, the World Health Organization characterized the
coronavirus ("COVID-19") a pandemic, and the President of the United States
declared the COVID-19 outbreak a national emergency. The rapid spread of the
pandemic and the continuously evolving responses to combat it have had an
increasingly negative impact on the global economy. In view of the rapidly
changing business environment created by the uncertainty related to the depth
and or duration of the impact resulting from COVID-19, we have experienced
delays in our sales in select vertical markets and are currently unable to
determine if there will be any continued disruption and the extent to which this
may have future impact on our business. We continue to monitor the progression
of the pandemic and its effect on our financial position, results of operations,
and cash flows.
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Results of Operations
The following table includes net revenue and net profit information by business
segment and reconciles gross profit to loss before income taxes (in thousands).
Three Months Ended March 31,
2021 2020 % Change
Identity:
Net revenue $ 13,658 $ 9,886 38 %
Gross profit 3,359 2,974 13 %
Gross profit margin 25 % 30 %
Premises:
Net revenue 8,504 8,234 3 %
Gross profit 4,333 4,526 (4 %)
Gross profit margin 51 % 55 %
Total:
Net revenue 22,162 18,120 22 %
Gross profit 7,692 7,500 3 %
Gross profit margin 35 % 41 %
Operating expenses:
Research and development 2,337 2,596 (10 %)
Selling and marketing 4,064 4,497 (10 %)
General and administrative 2,125 2,191 (3 %)
Restructuring and severance 388 65 N/A
Total operating expenses: 8,914 9,349 (5 %)
Loss from operations (1,222 ) (1,849 ) (34 %)
Non-operating income (expense):
Interest expense, net (245 ) (252 ) (3 %)
Foreign currency gains (losses), net 46 86 (47 %)
Loss before income taxes $ (1,421 ) $ (2,015 ) (29 %)
Geographic net revenue based on each customer's ship-to location is as follows
(in thousands):
Three Months Ended March 31,
2021 2020
Americas $ 15,148 $ 13,868
Europe and the Middle East 2,460 2,601
Asia-Pacific 4,554 1,651
Total $ 22,162 $ 18,120
Percentage of net revenue:
Americas 68 % 77 %
Europe and the Middle East 11 % 14 %
Asia-Pacific 21 % 9 %
Total 100 % 100 %
Net Revenue
Net revenue for the three months ended March 31, 2021 was $22.2 million, an
increase of 22% compared with $18.1 million for the comparable period of 2020.
Net revenue in the Americas was $15.1 million for the three months ended March
31, 2021, an increase of 9% compared to $13.9 million for the comparable period
of 2020. Net revenue from our Premises solution for security programs within
various U.S. government agencies and commercial customers for access control and
video solutions, as well as reader, controller and appliance products,
represented approximately 51% of our net revenue in the Americas. Net revenue in
Europe, the Middle East, and Asia-Pacific was approximately $7.0 million for the
three months ended March 31, 2021, an increase of 65% compared with the
comparable period of 2020. Sales of RFID and NFC products and smart card readers
comprise a significant proportion of our net revenue in these regions.
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Net revenue in our Identity segment, which represented 62% of our net revenue,
was $13.7 million for the three months ended March 31, 2021, an increase of 38%
compared with $9.9 million for the comparable period of 2020. Net revenue in
this segment in the Americas for the three months ended March 31, 2021 increased
16% compared with the comparable period of 2020 primarily due to higher sales of
RFID transponder products and smart card readers. The primary driver of higher
sales of our RFID transponder products was the broad adoption of NFC, and the
continued demand for smart card reader products with shelter in place actions
driving the need for more work from home technologies. Net revenue in this
segment in Europe, the Middle East, and the Asia-Pacific increased
approximately 80% for the three months ended March 31, 2021 compared with the
comparable period of 2020 due to higher sales of RFID transponder products and
smart card readers. RFID transponder products comprised approximately 63% of net
revenue in these regions for the three months ended March 31, 2021, and 45% of
net revenue for the three months ended March 31, 2020, while smart card reader
sales for the three months ended March 31, 2021 and 2020 comprised approximately
24% and 36% of the net revenue.
Net revenue in our Premises segment, which represented 38% of our net revenue,
was $8.5 million for the three months ended March 31, 2021, an increase of 3%
compared with $8.2 million for the comparable period of 2020. Net revenue in
this segment in the Americas for the three months ended March 31, 2021 increased
4% compared with the comparable period of 2020 primarily due to higher Hirsch
Velocity software product sales and related support services, particularly in
the federal government, partially offset by lower sales of video technology and
analytics software products and related support services. Net revenue in this
segment across Europe, the Middle East, and Asia-Pacific was comparable to the
comparable period of 2020.
As a general trend, U.S. Federal agencies continue to be subject to security
improvement mandates under programs such as Homeland Security Presidential
Directive-12 ("HSPD-12") and reiterated in memoranda from the Office of
Management and Budget ("OMB M-11-11"). We believe that our solutions for trusted
physical access is an attractive offering to help federal agency customers move
towards compliance with federal directives and mandates. To address sales
opportunities in the United States in general and with our U.S. Government
customers in particular, we focus on a strong U.S. sales organization and our
sales presence in Washington D.C.
More recently, in response to the new needs for health and safety in the
physical security market overall, due to the COVID-19 pandemic, we have released
products to address these trends. During 2020, we launched our contact tracing
downloadable extension for our Velocity access system, our occupancy tracking
system based on our 3VR platform, our MobilisID touchless reader and our
temperature tracking tag. In addition, with the economic impact of the COVID-19
pandemic creating more uncertainty for our customers, we have released several
products which are subscription based and which allow payments over time for our
physical access and video solutions as a service.
Gross Profit and Gross Margin
Gross profit for the three months ended March 31, 2021 was $7.7 million, or 35%
of net revenue, compared with $7.5 million, or 41% of net revenue in the
comparable period of 2020. Gross profit represents net revenue less direct cost
of product sales, manufacturing overhead, other costs directly related to
preparing the product for sale including freight, scrap, inventory adjustments
and amortization, where applicable.
In our Identity segment, gross profit was $3.4 million in the three months ended
March 31, 2021 compared with $3.0 million in the comparable period of 2020.
Gross profit margins in the Identity segment decreased to 25% in the three
months ended March 31, 2021 from 30% in the comparable period of 2020 primarily
due to the change in product mix, with a higher proportion of lower margin RFID
transponder product sales.
In our Premises segment, gross profit was $4.3 million in the three months ended
March 31, 2021 compared with $4.5 million in the comparable period of 2020.
Gross profit margins in the Premises segment decreased to 51% in the three
months ended March 31, 2021 from 55% in the comparable period of 2020 primarily
due to product mix, with lower sales of higher margin video analytics software
and services compared to the comparable period in 2020.
We expect there will be variation in our total gross profit from period to
period, as our gross profit has been and will continue to be affected primarily
by varying mix among our products. Within each product category, gross margins
have tended to be consistent, but over time may be affected by a variety of
factors, including, without limitation, competition, product pricing, the volume
of sales in any given quarter, manufacturing volumes, product configuration and
mix, the availability of new products, product enhancements, software and
services, risk of inventory write-downs and the cost and availability of
components.
Operating Expenses
Information about our operating expenses for the three months ended March 31,
2021 and 2020 is set forth below (dollars in thousands).
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Research and Development
Three Months Ended March 31,
2021 2020 % Change
Research and development $ 2,337 $ 2,596 (10 %)
as a % of net revenue 11 % 14 %
Research and development expenses consist primarily of employee compensation and
fees for the development of hardware, software and firmware products. We focus
the bulk of our research and development activities on the continued development
of existing products and the development of new offerings for emerging market
opportunities.
Research and development expenses for the three months ended March 31, 2021
decreased compared to the comparable prior year period primarily due to lower
headcount and related costs, partially offset by higher external contractor
costs.
Selling and Marketing
Three Months Ended March 31,
2021 2020 % Change
Selling and marketing $ 4,064 $ 4,497 (10 %)
as a % of net revenue 18 % 25 %
Selling and marketing expenses consist primarily of employee compensation as
well as amortization expense of certain intangible assets, customer lead
generation activities, tradeshow participation, advertising and other marketing
and selling costs.
Selling and marketing expenses for the three months ended March 31, 2021
decreased compared to the comparable prior year period primarily due to lower
amortization expense associated with intangible assets that were fully amortized
in the fourth quarter of 2020, and higher recruiting fees in the three months
ended March 31, 2020.
General and Administrative
Three Months Ended March 31,
2021 2020 % Change
General and administrative $ 2,125 $ 2,191 (3 %)
as a % of net revenue 10 % 12 %
General and administrative expenses consist primarily of compensation expenses
for employees performing administrative functions, and professional fees
incurred for legal, auditing and other consulting services.
General and administrative expense for the three months ended March 31, 2021
decreased compared to the prior year period primarily due to reductions in
headcount and related costs associated with our continued integration efforts
across general and administrative functions.
Restructuring and Severance Charges
Three Months Ended March 31,
2021 2020 % Change
Restructuring and severance $ 388 $ 65 N/A
Restructuring expenses incurred during the three months ended March 31, 2021 of
$388,000, consists of facility rental related costs of $329,000, which included
a charge of $281,000 resulting from the impairment of a right-of-use operating
lease asset for office space we vacated in the first quarter of 2021, and
severance related costs of $59,000. Restructuring expenses incurred during the
three months ended March 31, 2020 of $65,000 consist primarily of severance
related costs.
See Note 14, Restructuring and Severance, in the accompanying notes to our
unaudited condensed consolidated financial statements for more information.
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Non-operating Income (Expense)
Information about our non-operating income (expense) for the three months ended
March 31, 2021 and 2020 is set forth below (dollars in thousands).
Three Months Ended March 31,
2021 2020 % Change
Interest expense, net $ (245 ) $ (252 ) (3 %)
Foreign currency gains (losses), net $ 46 $ 86 (47 %)
Interest expense, net consists of interest on financial liabilities,
amortization of debt issuance costs, and interest accretion expense for a
liability on a contractual payment obligation arising from our acquisition of
Hirsch Electronics Corporation.
The decrease in interest expense for the three months ended March 31, 2021
compared to the comparable period of 2020 was primarily attributable to lower
borrowings outstanding under our revolving loan facility with our lender. See
Note 7, Contractual Payment Obligation and Note 8, Financial Liabilities, in the
accompanying notes to our unaudited condensed consolidated financial statements
for more information.
Changes in currency valuation in the periods mainly were the result of exchange
rate movements between the U.S. dollar, the Indian Rupee, the Canadian dollar,
and the euro. Our foreign currency gains and losses primarily result from the
valuation of current assets and liabilities denominated in a currency other than
the functional currency of the respective entity in the local financial
statements.
Income Tax Provision
Three Months Ended March 31,
2021 2020 % Change
Income tax provision $ (44 ) $ (32 ) 38 %
Effective tax rate (3 %) (2 %)
As of March 31, 2021, our deferred tax assets are fully offset by a valuation
allowance. Accounting Standards Codification ("ASC") 740, Income Taxes, provides
for the recognition of deferred tax assets if realization of such assets is
more-likely-than-not. Based upon the weight of available evidence, which
includes historical operating performance, reported cumulative net losses since
inception and difficulty in accurately forecasting our future results, we
provided a full valuation allowance against all of our net U.S. and foreign
deferred tax assets. We reassess the need for our valuation allowance on a
quarterly basis. If it is later determined that a portion or all of the
valuation allowance is not required, it generally will be a benefit to the
income tax provision in the period such determination is made.
We recorded an income tax provision during the three months ended March 31,
2021. The effective tax rates for the three months ended March 31, 2021 and 2020
differ from the federal statutory rate of 21% primarily due to a change in
valuation allowance, and the provision or benefit in certain foreign
jurisdictions, which are subject to higher tax rates.
Liquidity and Capital Resources
As of March 31, 2021, our working capital, defined as current assets less
current liabilities, was $10.1 million, a decrease of $1.8 million compared to
$11.9 million as of December 31, 2020. As of March 31, 2021, our cash balance
was $11.5 million.
Sale of Common Stock
On April 7, 2021, we sold an aggregate of 3,779,342 shares of our common stock
at a public offering price of $10.65 per share in an underwritten public
offering. We received net proceeds of approximately $37.9 million from the sale
of the common stock in the public offering, after deducting the underwriting
discount and other offering related expenses of $2.3 million.
East West Bank
On February 8, 2017, we entered into a loan and security agreement with East
West Bank ("EWB"). Following subsequent amendments, on February 8, 2021 we
amended and restated the Loan and Security Agreement in its entirety (the "Loan
and Security Agreement"). The Loan and Security Agreement provides for a $20.0
million revolving loan facility subject to a borrowing base and a $4.0 million
non-formula revolving loan facility that is not subject to a borrowing base. Our
obligations under the Loan and Security Agreement are collateralized by
substantially all of our assets.
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The maturity date of the main revolving loan facility is February 8, 2023. The
non-formula revolving loan facility will terminate on February 7, 2022, however
we may, at our option if certain conditions are met, convert prior to their
maturity any loans under the non-formula revolving loan facility to a term loan
that will fully amortize and mature on February 1, 2025. Advances under the
revolving loan facilities and the term loan (if converted) will initially bear
interest at a per annum rate equal to the prime rate as determined under
the Loan and Security Agreement plus 0.25%. On April 30, 2021, we entered into
an amendment to our Loan and Security Agreement which reduced the per annum
interest rate to the prime interest rate.
We may voluntarily prepay amounts outstanding under the revolving loan
facilities and the term loan without prepayment charges. In the event the Loan
and Security Agreement is terminated prior to February 8, 2023, we would be
required to pay an early termination fee in the amount of 2.0% of the main
revolving loan line if terminated prior to February 8, 2022 and 1% of the main
revolving loan line thereafter. Additional borrowing requests under the
revolving loan facilities are subject to various customary conditions precedent,
including a borrowing base for the main revolving loan facility.
The Loan and Security Agreement contains customary representations and
warranties and customary affirmative and negative covenants, including, limits
or restrictions on our ability to incur liens, incur indebtedness, make certain
restricted payments (including dividends), merge or consolidate and dispose of
assets. In addition, the Loan and Security Agreement contains financial
covenants requiring that we (i) hold $5 million in unrestricted cash in accounts
with EWB, (ii) maintain a monthly minimum trailing six-month EBITDA of $0.6
million for the first two quarters of 2021 and $1.2 million thereafter and (iii)
maintain, if we convert into the term loan and starting with the quarter ending
March 31, 2022, a quarterly fixed charge coverage ratio of at least 1.35 : 1.00.
The Loan and Security Agreement contains customary events of default that
entitle EWB to cause any or all of our indebtedness under it to become
immediately due and payable. The events of default (some of which are subject to
applicable grace or cure periods), include, among other things, non-payment
defaults, covenant defaults, cross-defaults to other material indebtedness,
bankruptcy and insolvency defaults and material judgment defaults. Upon the
occurrence and during the continuance of an event of default, EWB may terminate
its lending commitment and/or declare all or any part of the unpaid principal of
all loans, all interest accrued and unpaid thereon and all other amounts payable
under the Loan and Security Agreement to be immediately due and payable.
See Note 8, Financial Liabilities and Note 10, Stockholders' Equity in the
accompanying notes to our unaudited condensed consolidated financial statements
for more information.
April 21 Funds
On May 5, 2020, we issued secured subordinated promissory notes in an aggregate
principal amount of $4.0 million (the "Notes") to 21 April Fund, LP and 21 April
Fund, Ltd. (collectively referred to as the "April 21 Funds") pursuant to a Note
and Warrant Purchase Agreement entered into with the April 21 Funds (the "Note
Purchase Agreement"). The Notes are collateralized by our assets, but
subordinate to our obligations to EWB under the Loan and Security Agreement.
Proceeds from the sale of the Notes were only to be used for expenses incurred
by us in connection with our provisions of goods and services under a statement
of work with a third party. The Notes have an initial term of nine months and do
not bear interest during this period. However, if the Notes are not repaid on or
before the nine-month anniversary of issuance, (a) the Notes will thereafter
bear interest of 8% per annum, payable quarterly, and (b) additional warrants to
purchase common stock would be issuable to the April 21 Funds for each month all
or a portion of the Notes remain unpaid. In the event the Notes are not paid in
full by the first anniversary of their issuance, May 5, 2021, they shall
thereafter bear interest of 12% per annum, payable quarterly, and additional
warrants would be issuable to the April 21 Funds.
On February 5, 2021, we entered into an amendment to our secured subordinated
promissory note with April 21 Funds, which extended the initial term of the
Notes to March 31, 2021. As a result of the amendment, if the Notes are repaid
on or before March 31, 2021, we will incur no further interest on the Notes, or
be obligated to issue additional warrants. As of March 31, 2021, the principal
amount outstanding under the Notes was $2.8 million.
On March 31, 2021, April 21 Funds waived any additional warrants issuable, and
interest payable, to April 21 Funds through May 5, 2021. On April 13, 2021, we
repaid the remaining principal amount outstanding of $2.8 million.
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Paycheck Protection Program
On April 9, 2020, we entered into a promissory note (the PPP Note") under the
Paycheck Protection Program established under Section 1102 of the Coronavirus
Aid, Relief and Economic Security ("CARES") Act. The PPP Note is dated April 8,
2020 with EWB. We borrowed a principal amount of approximately $2.9 million. The
interest on the PPP Note is 1.0% per annum. The PPP Note is payable two years
from the date of the PPP Note, and there is no prepayment penalty. All interest
which accrues during the initial six months of the loan period is deferred and
payable on the maturity date of the PPP Note. Notes issued under the CARES Act
may be eligible for forgiveness in whole or in part in accordance with Small
Business Administration rules established for the Paycheck Protection Program.
The principal amount outstanding, including accrued interest, is included in
current portion - financial liabilities and other accrued expenses and
liabilities in the accompanying consolidated balance sheets, as we expect all
amounts outstanding will be forgiven in 2021.
As our previously unremitted earnings have been subjected to U.S. federal income
tax, we expect any repatriation of these earnings to the U.S. would not incur
significant additional taxes related to such amounts. However, our estimates are
provisional and subject to further analysis. Generally, most of our foreign
subsidiaries have accumulated deficits and cash and cash equivalents that are
held outside the United States are typically not cash generated from earnings
that would be subject to tax upon repatriation if transferred to the United
States. We have access to the cash held outside the United States to fund
domestic operations and obligations without any material income tax
consequences. As of March 31, 2021, the amount of cash included at such
subsidiaries was $1.6 million. We have not, nor do we anticipate the need to,
repatriate funds to the United States to satisfy domestic liquidity needs
arising in the ordinary course of business, including liquidity needs associated
with our domestic debt service requirements.
We have historically incurred operating losses and negative cash flows from
operating activities, and we may continue to incur losses in the future. As of
March 31, 2021, we had a total accumulated deficit of $412.1 million. During the
three months ended March 31, 2021, we had a net loss of $1.5 million.
We believe our existing cash balance, together with cash generated from
operations and available credit under our Loan and Security Agreement, as well
as the $37.9 million net proceeds received in our underwritten public offering
in April 2021, will be sufficient to satisfy our working capital needs to fund
operations for the next twelve months. We may also use cash to acquire or invest
in complementary businesses, technologies, services or products that would
change our cash requirements. We may also choose to finance our business through
public or private equity offerings, debt financings or other arrangements.
However, there can be no assurance that additional capital will be available to
us or that such capital will be available to us on acceptable terms. If we raise
funds by issuing equity securities, dilution to stockholders could result. Debt
or any equity securities issued also may provide for rights, preferences or
privileges senior to those of holders of our common stock. The terms of debt
securities issued or borrowings could impose significant restrictions on our
operations. The incurrence of additional indebtedness or the issuance of certain
debt or equity securities could result in increased fixed payment obligations
and could also result in restrictive covenants, such as limitations on our
ability to incur additional debt or issue additional equity, limitations on our
ability to acquire or license intellectual property rights and other operating
restrictions that could adversely affect our ability to conduct our business.
Our Loan and Security Agreement imposes restrictions on our operations,
increases our fixed payment obligations and has restrictive covenants. In
addition, the issuance of additional equity securities by us, or the possibility
of such issuance, may cause the market price of our common stock to decline. If
we are not able to secure additional funding when needed, we may have to curtail
or reduce the scope of our business or forgo potential business opportunities.
The following summarizes our cash flows for the three months ended March 31,
2021 and 2020 (in thousands):
March 31,
2021 2020
Net cash used in operating activities $ (411 ) $ (3,709 )
Net cash used in investing activities (1,131 ) (137 )
Net cash provided by financing activities 1,963 3,412
Effect of exchange rates on cash and cash equivalents (312 ) (253 )
Net increase (decrease) in cash and cash equivalents 109 (687 )
Cash and cash equivalents at beginning of period 11,409 9,383
Cash and cash equivalents at end of period $ 11,518 $ 8,696
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Cash flows from operating activities
Cash used in operating activities for the three months ended March 31, 2021 was
primarily due to net loss of $1.5 million, a decrease in cash from net changes
in operating assets and liabilities of $0.5 million, and adjustments for certain
non-cash items of $1.6 million, consisting primarily of depreciation,
amortization, amortization of debt issuance costs, stock-based compensation, and
impairment of a right-of-use operating lease asset.
Cash used in operating activities for the three months ended March 31, 2020 was
primarily due to net loss of $2.0 million, a decrease in cash from net changes
in operating assets and liabilities of $3.2 million, and adjustments for certain
non-cash items of $1.5 million, consisting primarily of depreciation,
amortization, amortization of debt issuance costs, and stock-based compensation.
Cash flows from investing activities
Cash used in investing activities for the three months ended March 31, 2021 and
2020 was $1.1 million and $0.1 million, respectively, which related to capital
expenditures.
Cash flows from financing activities
Cash provided by financing activities during the three months ended March 31,
2021 was primarily due to net borrowings under our revolving loan facility of
$2.2 million, partially offset by taxes paid related to net share settlement of
restricted stock units of $0.3 million.
Cash provided by financing activities during the three months ended March 31,
2020 was primarily due to net borrowings under our revolving loan and term loan
facilities of $3.6 million, partially offset by taxes paid related to net share
settlement of restricted stock units of $0.2 million.
Off-Balance Sheet Arrangements
We have not entered into off-balance sheet arrangements, or issued guarantees to
third parties, except as disclosed in Note 7, Contractual Payment Obligation.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP"). The preparation of these financial statements requires management
to establish accounting policies that contain estimates and assumptions that
affect the amounts reported in the condensed consolidated financial statements
and accompanying notes. These policies relate to revenue recognition, inventory,
income taxes, goodwill, intangible and long-lived assets and stock-based
compensation. We have other important accounting policies and practices;
however, once adopted, these other policies either generally do not require us
to make significant estimates or assumptions or otherwise only require
implementation of the adopted policy and not a judgment as to the policy itself.
Management bases its estimates and judgments on historical experience and on
various other factors that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Despite our intention to establish accurate estimates and assumptions,
actual results may differ from these estimates under different assumptions or
conditions.
During the three months ended March 31, 2021, management believes there have
been no significant changes to the items that we disclosed within our critical
accounting policies and estimates in Management's Discussion and Analysis of
Financial Condition and Results of Operations in our Annual Report on Form 10-K
for the year ended December 31, 2020.
Recent Accounting Pronouncements
See Note 2, Significant Accounting Policies and Recent Accounting
Pronouncements, in the accompanying notes to our unaudited condensed
consolidated financial statements in Item 1 of Part I of this Quarterly Report
for a description of recent accounting pronouncements, which is incorporated
herein by reference.
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