SITIME CORPORATION The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this document.
The information in this Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended ("Securities Act"), and Section 21E of the Securities Exchange Act of
1934, as amended ("Exchange Act"), which are subject to the "safe harbor"
created by those sections. These forward-looking statements reflect our
management's beliefs and views with respect to future events and are based on
estimates and assumptions as of the date of this report and are subject to risks
and uncertainties. We may, in some cases, use words such as "anticipate,"
"believe," "could," "continue," "estimate," "expect," "intend," "may,"
"objective," "plan," "potential," "predict," "project," "should," "will,"
"would," or the negative of those terms, and similar expressions that convey
uncertainty of future events or outcomes to identify these forward-looking
statements. Forward-looking statements in this report include, but are not
limited to, statements regarding:
• our plans to focus on clock IC and timing sync solutions in the future
and to aggressively expand our presence in these two markets;
• the impact of the COVID-19 pandemic on our business, revenue and other
operating results, liquidity, and cash flows, and its impact on the
businesses of our suppliers and customers, and our anticipated responses
thereto;
• our ability to address market and customer demands and to timely develop
new or enhanced solutions to meet those demands;
• anticipated trends, challenges and growth in our business and the markets
in which we operate, including pricing expectations;
• our expectations regarding our revenue, gross margin, and expenses;
• expected impact of new legistlation and
to the COVID-19 pandemic;
• our belief as to the sufficiency of our existing cash and cashequivalents and funds available for borrowing under our credit facilities
to meet our cash needs for at least the next 12 months and our future
capital requirements over the longer term, including the potential impact
of the COVID-19 pandemic thereon;
• our expectations regarding dependence on our largest customer;
• our customer relationships and our ability to retain and expand our
customer relationships and to achieve design wins;
• the success, cost, and timing of new products;
• the size and growth potential of the markets for our solutions, and our
ability to serve and expand our presence in those markets;
• our plans to expand sales and marketing efforts through increased
collaboration with our distributors, resellers, and contracted sales
representatives, and our plans to introduce a self-service web portal as
well as digital marketing campaigns for branding and lead generation;
• our goal to become the leading timing solution provider for advanced and
challenging applications;
• our positioning of being designed into current systems as well as futureproducts;
• our belief that our advanced packaging designs can fit in the smallest
footprints in the industry;
• our expectations regarding competition in our existing and new markets;
• regulatory developments inthe United States and foreign countries;
• the performance of, and our relationships with, our third-party suppliers
and manufacturers;
• our and our customers' ability to respond successfully to technological
or industry developments;
• our ability to attract and retain key management personnel;
• intellectual property and related litigation;
• the adequacy and availability of our leased facilities;
• the accuracy of our estimates regarding capital requirements,
expectations regarding renewal of loans, and needs for additional
financing;
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• our relationship with, and ownership percentage of, MegaChips Corporation
("MegaChips");
• our expectations regarding the period during which we qualify as an
emerging growth company under the JOBS Act; and
• our expectations regarding our ability to obtain, maintain, protect, and
enforce intellectual property protection for our technology.
In addition, any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Forwardlooking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expected or referenced in these forward-looking statements. These risks and uncertainties include, but are not limited to, those risks discussed in Part II, Item 1A Risk Factors of this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We qualify all of the forward-looking statements in this report by these cautionary statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law. Overview We are a leading provider of silicon timing solutions. Our timing solutions are the heartbeat of our customers' electronic systems, solving complex timing problems and enabling industry-leading products. We provide solutions that are differentiated by high performance and reliability, programmability, small size, and low power consumption. Our products have been designed into over 200 applications across our target markets, including enterprise and telecommunications infrastructure, automotive, industrial, IoT and mobile, and aerospace and defense. We commenced commercial shipments of our first oscillator products in 2006. Substantially all of our revenue to date has been derived from sales of oscillator systems across our target end markets. We intend to introduce products into the clock IC market, which we began sampling in 2019, and to focus on clock IC and timing sync solutions in the future. We seek to aggressively expand our presence in these two markets. We sell our products primarily through distributors and resellers, who in turn sell to our end customers. Based on sell-through information provided by these distributors, we believe the majority of our end customers are based in theU.S. We operate a fabless business model, allowing us to focus on the design, sales, and marketing of our products, quickly scale production, and significantly reduce our capital expenditures. We leverage our global network of distributors and resellers to address the broad set of end markets we serve. For our largest accounts, dedicated sales personnel work with the end customer to ensure that our solutions fully address the end customer's timing needs. Our smaller customers work directly with our distributors to select the optimum timing solution for their needs. We were acquired by MegaChips in 2014 and were a wholly-owned subsidiary of MegaChips, a fabless semiconductor company based inJapan and traded on theTokyo Stock Exchange , untilNovember 25, 2019 . OnNovember 25, 2019 , we completed the initial public offering of shares of our common stock. MegaChips continues to be our largest stockholder and held approximately 44.9% of our common stock as ofJune 30, 2020 . OnJune 16, 2020 , we completed a follow-on public offering, in which we issued and sold 1,525,000 shares of our common stock and MegaChips sold 2,500,000 of our common stock held by them.
Impact of COVID-19 on our Business
The future impact of the global emergence of the COVID-19 pandemic on our business is currently unknown. In an effort to protect the health and safety of our employees, we took proactive actions and adopted social distancing policies at our locations around the world, including WFH, reducing the number of people in our sites at any one time, and suspending employee travel. In an effort to contain the COVID-19 pandemic or slow its spread, governments around the world have also enacted various measures, including orders to close all businesses not deemed "essential," isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. In addition,the United States and other foreign countries in which we operate have imposed measures such as quarantines and "shelter-in-place" orders that are restricting business operations and travel and requiring individuals to work from home ("WFH"), which has impacted all aspects of our business, as well as those of the third-parties we rely upon for our manufacturing, assembly, testing, shipping and other operations. 15
-------------------------------------------------------------------------------- We anticipate the global health crisis caused by the COVID-19 pandemic will negatively impact business activity across the globe and our results of operations. We believe that the COVID-19 pandemic has caused, and could continue to cause, delay and disruption in the manufacture, shipment, and sales of, and overall demand for, our products. In addition, we believe the production capabilities of our suppliers has been, and may continue to be, impacted as a result of quarantines, closures of production facilities, lack of supplies, or delays caused by restrictions on travel or WFH orders. For example, onMarch 16, 2020 , the government ofMalaysia announced measures to restrict movement in that country to suppress the number of COVID-19 cases. The restrictions have been extended currently untilAugust 31, 2020 . These restrictions could limit our suppliers' ability to operate their manufacturing facilities in that country. Any delay or disruption in the manufacture, shipment and sales of, or overall demand for, our products in turn may negatively and materially impact our operating and financial results, including revenue, gross margins, operating margins, cash flows and other operating results. Further, the resumption of normal business operations after such disruptions may be delayed and a resurgence of COVID-19 could result in continued disruption to us, our suppliers, and/or our customers. To date, the Company has experienced minimal impact from any supplier disruption. The duration and full magnitude of the COVID-19 pandemic's impact on credit and financial markets is also unknown, which creates uncertainty as to the financial condition of our distributors or customers. In addition, the deterioration in credit markets could limit our ability to obtain external financing to fund our operations and capital expenditures. We may also experience losses on our holdings of cash and investments due to failures of financial institutions and other parties. We currently have employees, third-party contractors, distributors, and customers in numerous countries throughout the world that have each been impacted by the COVID-19 pandemic. The COVID-19 pandemic has restricted and is expected to continue to restrict travel and use of our facilities and the facilities of our suppliers, customers, or other vendors in our supply chain, which could impact our business, interactions and relationships with our customers, third-party suppliers and contractors, and results of operations. We cannot predict with certainty what other impacts the COVID-19 pandemic may have on our business and results of operations. There remains a high degree of uncertainty in the global business environment given the impact of the COVID-19 pandemic which creates challenges with visibility beyond the near term. We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees, operations, and prospects, or on our financial results for the remainder of fiscal 2020 or beyond. For additional discussion, please see Part II, Item 1A Risk Factors of this report.
Results of Operations
Revenue
We derive revenue primarily from sales of silicon timing products to
distributors and resellers who in turn sell to our end customers. We also sell
products directly to end customers who integrate our products into their
applications. Our sales are made pursuant to standard purchase orders which may
be cancelled, reduced, or rescheduled, with little or no notice. We recognize
product revenue upon shipment when we satisfy our performance obligations as
evidenced by the transfer of control of our products to customers. We measure
revenue based on the amount of consideration we expect to be entitled to in
exchange for products.
Three Months Ended June 30, Change Six Months Ended June 30, Change
2020 2019 $ % 2020 2019 $ %
(in thousands except percentage)
Revenue $ 21,473 $ 15,843 $ 5,630 36 % $ 43,215 $ 30,660 $ 12,555 41 %
Revenue increased by $5.6 million , or 36%, for three months ended June 30, 2020
compared to the same period in the prior year. The revenue from our customers
largely in Asia increased $5.2 million primarily from higher sales volume of 17%
and an increase in ASP of $0.08 drive by the mix of products. The remaining
increase was primarily related to increased revenue of $0.4 million from our
largest customer from higher sales volume and higher ASP driven by the change in
the mix of the products sold.
Revenue increased by $12.6 million , or 41%, for six months ended June 30, 2020
compared to the same period in the prior year. The revenue from our customers
largely in Asia increased $10.8 million primarily from higher sales volume of
39% and an increase in ASP of $0.03 . The remaining increase was primarily
related to increased revenue of $1.7 million from our largest customer from
higher sales volume and higher ASP driven by mix of products sold. The overall
average selling price of our products increased by $0.03 year over year driven
mostly by mix of products.
16
-------------------------------------------------------------------------------- For the three and six months endedJune 30, 2020 , sales attributable to our largest end customer accounted for 26% and 30% of our revenue, respectively. For the three and six months endedJune 30, 2020 , our top three distributors by revenue together accounted for approximately 51% and 54% of our revenue, respectively. Revenue attributable to our largest ten end customers accounted for 50% and 51% respectively for the three and six months endedJune 30, 2020 .
Cost of Revenue, Gross Profit, and Gross Margin
Cost of revenue consists of wafers acquired from third-party foundries,
assembly, packaging, and test cost of our products paid to third-party contract
manufacturers, and personnel and other costs associated with our manufacturing
operations. Cost of revenue also includes depreciation of production equipment,
inventory write-downs, amortization of internally developed software, shipping
and handling costs, and allocation of overhead and facility costs. We also
include credits for rebates received from foundries to cost of revenue.
Three Months Ended June 30, Change Six Months Ended June 30, Change
2020 2019 $ % 2020 2019 $ %
(in thousands except percentage) (in thousands except percentage)Cost of Revenue$ 11,490 $ 9,469 $ 2,021 21 %$ 23,256 $ 16,697 $ 6,559 39 % Gross Profit 9,983 6,374 3,609 57 % 19,959 13,963 5,996 43 % Gross Margin 46 % 40 % 46 % 46 % Gross profit increased by$3.6 million in the three months endedJune 30, 2020 compared to the same period in the prior year. The gross profit for the period endedJune 30, 2019 included a benefit of$0.4 million from the sale of previously reserved inventory. Gross profit excluding this benefit of$0.4 million increased$4.0 million year over year mainly from higher sales volume and a slight increase in ASP as other manufacturing costs remained relatively flat. Gross profit increased by$6.0 million in the six months endedJune 30, 2020 compared to the same period in the prior year. The gross profit for the period endedJune 30, 2019 included a benefit of$1.7 million from the sale of previously reserved inventory. Gross profit excluding this benefit of$1.7 million increased$7.7 million year over year mainly from higher sales volume and an increase in ASP as other manufacturing costs remained relatively flat. Gross margin was higher by 6% in the three months endedJune 30, 2020 when compared to the same period in the prior year. The gross margin for the period endedJune 30, 2019 included a benefit of 2% or$0.4 million from sale of previously reserved inventory. The gross margin excluding the benefit to the gross margin from the sale of the previosly reserved inventoy increased by 9% year over year from higher sales volume and a slight increase in ASP as other manufacturing costs remained relatively flat. Gross margin was flat in the six months endedJune 30, 2020 when compared to the same period in the prior year. The gross margin for the period endedJune 30, 2019 included a benefit of 6% or$1.7 million from sale of previously reserved inventory. The gross margin excluding the benefit to the gross margin from the sale of the previosly reserved inventoy increased by 6% year over year from higher sales volume and an increase in ASP as other manufacturing costs remained relatively flat. Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of our operating expenses and consist of salaries, benefits, bonuses, stock-based compensation, and commissions. Our operating expenses also include consulting costs, allocated costs of facilities, information technology and depreciation. We expect our operating expenses to fluctuate in absolute dollars and as a percentage of revenue over time.
Research and Development
Our research and development efforts are focused on the design and development
of next-generation silicon timing systems solutions. Our research and
development expense consists primarily of personnel costs, which include
stock-based compensation, pre-production engineering mask costs, software
license and intellectual property expenses, design tools and prototype-related
expenses, facility costs, supplies, professional and consulting fees, and
allocated overhead costs. We expense research and development costs as
incurred. We believe that continued investment in our products and services is
important for our future growth and acquisition of new customers and, as a
result, we expect our research and development expenses to continue to increase
in absolute dollars. However, we expect our research and development expense to
fluctuate as a percentage of revenue from period to period depending on the
timing of these expenses.
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Sales, General and Administrative
Sales, general and administrative expense consists of personnel costs, including
stock-based compensation, professional and consulting fees, accounting and audit
fees, legal costs, field application engineering support, travel costs,
advertising expenses and allocated overhead costs. We expect sales, general and
administrative expense to continue to increase in absolute dollars as we
increase our personnel and grow our operations, although it may fluctuate as a
percentage of revenue from period to period depending on the timing of these
expenses.
Three Months Ended June 30, Change Six Months Ended June 30, Change
2020 2019 $ % 2020 2019 $ %
(in thousands except percentage) (in thousands except percentage)Operating Expenses: Research and development$ 7,398 $ 6,249 $ 1,149 18 %$ 14,422 $ 12,069 $ 2,353 19 % Selling, general and administrative 7,856 5,106 2,750 54 % 15,664 9,297 6,367 68 % Total operating expenses$ 15,254 $ 11,355 $ 3,899 34 %$ 30,086 $ 21,366 $ 8,720 41 %
Research and development expense increased by
Selling, general and administrative expense increased by$2.8 million , or 54%, for the three months endedJune 30, 2020 compared to the same period in the prior year, primarily due to higher stock-based compensation expense of$2.1 million ,$0.5 million of higher personnel costs largely related to increased headcount and expenses for services related to the requirements of being a public company.
Research and development expense increased by
Selling, general and administrative expense increased by$6.4 million , or 68%, for the six months endedJune 30, 2020 compared to the same period in the prior year, primarily due to higher stock-based compensation expense of$3.9 million , higher personnel costs of$0.9 million largely related to increased headcount,$0.5 million of additional legal expenses in connection with our patent litigation matter and due to additional expenses for services related to the requirements of being a public company.
Other Expense
Other income (expense) consists primarily of interest expense on our outstanding
debt, foreign exchange gains and losses, and asset dispositions. See Note 7 to
our consolidated financial statements under Item 8 for more information about
our debt.
Three Months Ended June 30, Change Six Months Ended June 30, Change
2020 2019 $ % 2020 2019 $ %
(in thousands except percentage) (in thousands except percentage)Interest Expense $ 313 $ 456$ (143 ) (31 %)$ 616 $ 894 $ (278 ) (31 %) Other expense, net 20 11 9 82 % (48 ) 21 (69 ) (329 %) Total other expense $ 333 $ 467$ (134 ) (29 %)$ 568 $ 915 $ (347 ) (38 %) Other expense decreased$0.1 million and$0.3 million for three and six months endedJune 30, 2020 compared to the same period in the prior year, primarily as a result of lower interest rates on lower balances on our outstanding revolving short-term debt during 2020 as compared to 2019.
Income Tax Benefit (Expense)
Income tax expense consists primarily of state income taxes and income taxes in
certain foreign jurisdictions in which we conduct business. We have a full
valuation allowance for deferred tax assets as the realization of the full
amount of our deferred tax asset is uncertain, including NOL, carryforwards, and
tax credits related primarily to research and development. We expect to maintain
this full valuation allowance until realization of the deferred tax assets
becomes more likely than not.
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On March 27, 2020 , the Coronavirus Aid, Relief and Economic Security Act ("CARES
Act") was signed into law in the U.S. to provide certain relief as a result of
the COVID-19 pandemic. In addition, governments around the world have enacted or
implemented various forms of tax relief measures in response to the economic
conditions in the wake of the COVID-19 pandemic. As of June 30, 2020 , the
Company has determined that neither the CARES Act nor changes to income tax laws
or regulations in other jurisdictions had a significant impact on the Company's
effective tax rate.
Three Months Ended June 30, Change Six Months Ended June 30, Change
2020 2019 $ % 2020 2019 $ %
(in thousands except percentage) (in thousands except percentage)Income tax benefit (expense) $ 1 $ (1 )$ 2 (200%) $ (1 ) $ (1 ) $ - 0%
Liquidity and Capital Resources
Before our initial public offering inNovember 2019 , we financed our operations primarily through cash generated from product sales and proceeds from our credit facilities, including proceeds from our loan agreement with MegaChips. As ofJune 30, 2020 andDecember 31, 2019 , we had cash and cash equivalents of$102.5 million and$63.4 million , respectively. Our principal use of cash is to fund our operations to support growth. InJune 2020 , we completed a follow-on public offering of our shares, resulting in net proceeds to us of$45.8 million after deducting underwriting discounts and commissions and deferred offering costs. OnJuly 24, 2020 , the Company paid down all outstanding loans with MUFG of$35.0 million and has initiated the closure of all credit facilities available as ofJune 30, 2020 . As of the reporting date, it is challenging to assess the future impact of the COVID-19 pandemic on the Company. We believe that one impact of the COVID-19 pandemic on the Company may be a decrease in the Company's revenue. We are not currently aware of any other material short-term adverse influences on the Company. However, at this point in time, we cannot predict what other impacts the COVID-19 pandemic may have on the Company. We believe that our existing cash and cash equivalents and funds available after the paydown of our outstanding loans will be sufficient to meet our cash needs for at least the next 12 months. Over the longer term, our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our sales and marketing and research and development expenditures, and the continuing market acceptance of our solutions. In the event that we need to borrow funds or issue additional equity, we cannot provide any assurance that any such additional financing will be available on terms acceptable to us, if at all. If we are unable to raise additional capital when we need it, it would harm our business, results of operations and financial condition. Six Months Ended June 30, 2020 2019 (in thousands) Net cash provided by operating activities$ 5,655 $ 5,176 Net cash used in investing activities (2,881 ) (1,342 ) Net cash provided by (used in) financing activities 36,294 (62 ) Net increase in cash and cash equivalents$ 39,068 $ 3,772 Operating Activities In the six months endedJune 30, 2020 , net cash provided by operating activities of$5.7 million was primarily due to a net loss of$10.7 million offset by non-cash expenses of$10.5 million and an increase in operating assets and liabilities of$5.8 million . Non-cash expenses were mainly related to depreciation and amortization, impairment of internal-use software, stock-based compensation expense, and non-cash operating lease costs. Operating assets and liabilities increased primarily due to lower accounts receivables and related party receivables due to timing of shipments and collections, lower prepaid expenses and other current assets related to advance payments to suppliers for inventory and higher accrued expenses and other liabilities due to timing of payments partially offset by an increase in inventories as we managed our inventory levels and lower lease liabilities due to timing of payments. In the six months endedJune 30, 2019 , net cash provided by operating activities of$5.2 million was primarily due to a net loss of$8.3 million offset by non-cash expenses of$4.5 million and an increase in operating assets and liabilities of$9.0 million . The increase in operating assets and liabilities was primarily due to lower accounts receivable and related party receivables due to timing of shipment and collections, a decrease in inventories due to lower purchases primarily to manage our inventory levels, offset by lower accounts payable due to timing of payments, lower accrued expenses and other liabilities and lower lease liabilities. Non-cash items included depreciation and amortization, and non-cash operating lease costs. 19 --------------------------------------------------------------------------------
Investing Activities
Our investing activities consist primarily of capital expenditures for property and equipment purchases. Our capital expenditures for property and equipment have primarily been for general business purposes, including machinery and equipment, leasehold improvements, acquired software, internally developed software used in production and support of our products, computer equipment used internally, and production masks to manufacture our products.
In six months ended
In six months ended
Financing Activities
Cash provided by financing activities includes proceeds from borrowings under our credit facilities and proceeds from issuance of shares.
In six months endedJune 30, 2020 , net cash provided by financing activities was$36.3 million , consisting of proceeds from issuance of shares of$45.8 million net of underwriting commissions and discounts of$2.7 million and deferred offering costs of$0.3 million and borrowings of$35.0 million offset by repayments of$41.0 million under our short-term revolving line of credit and$3.5 million payment of tax withholdings paid on behalf of employees for net share settlement at the time of vesting.
In six months ended
Contractual Obligations and Commitments
Set forth below is information concerning our contractual commitments and
obligations as of
Payments due by period
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
(in thousands)
Debt obligations
- $ -
Operating leases 9,980 646 3,103 3,021 3,210 Purchase obligations 879 879 - - - Total$ 45,859 $ 36,525 $ 3,103 $ 3,021 $ 3,210 Obligations under contracts that we can cancel without a significant penalty are not included in the table above. The aggregate amount of our obligations under these contracts is approximately$11.4 million as ofJune 30, 2020 . We signed an operating lease agreement for our corporate headquarters inSanta Clara, California that commenced onOctober 20, 2016 and will expire onDecember 31, 2026 . The agreement provides for an option to renew for an additional five years and for rent payments through the term of the lease payment. We also lease office space inMichigan ,Malaysia ,Japan ,the Netherlands , andUkraine , and all under operating leases with various expiration dates throughDecember 2022 .
We purchase components and wafers from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. A significant portion of our reported purchase commitments arising from these agreements consists of firm, non-cancellable and unconditional purchase commitments once the production has started. In certain instances, these agreements allow us the option to cancel, reschedule, and adjust our requirements based on its business needs prior to firm orders being placed.
Off-Balance Sheet Arrangements
During the periods presented, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.
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--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
The preparation of our financial statements and accompanying disclosures in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and the accompanying notes.The Securities and Exchange Commission , orSEC , has defined a company's critical accounting policies as policies that are most important to the portrayal of a company's financial condition and results of operations, and which require a company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified our most critical accounting policies and estimates to be as follows: (1) revenue recognition; (2) inventory; (3) stock-based compensation; (4) accounting for income taxes and (5) segment reporting. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information not presently available. Actual results may differ significantly from these estimates if the assumptions, judgments, and conditions upon which they are based turn out to be inaccurate. Management believes that there have been no significant changes to the items that we disclosed as 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 endedDecember 31, 2019 filed with theSEC onMarch 3, 2020 .
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