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 oscillators, clock ICs, resonators and timing
synchronization solutions and to aggressively expand our presence in these
markets;
• the impact of the COVID-19 pandemic on our business, employees, 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 legislation and
COVID-19 pandemic;
• our belief as to the sufficiency of our existing cash and cash equivalents 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 future
products;
• our belief that our advanced packaging designs can enable the smallest
footprints in the industry;
• our expectations regarding competition in our existing and future markets;
• regulatory developments in
• 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 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.
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
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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, solve complex timing problems and enable 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 250 applications across our target markets, including communications and enterprise, automotive, industrial, aerospace, and mobile, IoT and consumer.
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 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. We also sell products directly to end customers who
integrate our products into their applications. Based on sell-through
information provided by these distributors, we believe the majority of our end
customers are based in the
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 in
We are currently experiencing a growth in demand for some of our products, however, there are a number of industry-wide supply constraints affecting the supply of analog circuits manufactured by certain foundries, including Taiwan Semiconductor Manufacturing Company, which may limit our ability to fully satisfy the increase in demand. If we cannot ship our products to our customers on time and in the quantity required as a result of this supply constraint our sales could decline and we could lose customers.
Impact of COVID-19 on our Business
The future impact of the ongoing COVID-19 pandemic on our business remains
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 requiring employees to work from home ("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 in their homes or
places of residence, and practice social distancing. In addition,
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We anticipate the global health crisis caused by the COVID-19 pandemic will
continue to impact business activity across the globe and will continue to
impact our business, employees and operations for the foreseeable future. We
believe that the COVID-19 pandemic could 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, on
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, employees, service providers, customers 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 remainder of fiscal 2021 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 March 31, Change 2021 2020 $ % (in thousands except percentage) Revenue$ 35,542 $ 21,742 $ 13,800 63 %
Revenue increased by
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For the three months ended
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 March 31, Change 2021 2020 $ % (in thousands except percentage) Cost of Revenue$ 16,725 $ 11,766 $ 4,959 42 % Gross Profit 18,817 9,976 8,841 89 % Gross Margin 53 % 46 %
Gross profit increased by
Gross margin was higher by 7% in the three months ended
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.
Three Months Ended March 31, Change 2021 2020 $ % (in thousands except percentage) Operating Expenses: Research and development$ 11,180 $ 7,024$ 4,156 59 % Selling, general and administrative 11,123 7,808 3,315 42 % Total operating expenses$ 22,303 $ 14,832 $ 7,471 50 % 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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Research and development expense increased by
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.
Selling, general and administrative expense increased by
Other Expense (Income)
Other expense (income) consists primarily of interest expense on our outstanding debt, interest income on our cash balances, foreign exchange gains and losses, and asset dispositions. See Note 9 to our condensed consolidated financial statements under Item 1 for more information about our debt.
Three Months Ended March 31, Change 2021 2020 $ % (in thousands except percentage) Interest Expense $ - $ 303$ (303 ) (100 %) Other expense (income), net 39 (68 ) 107 (157 %) Total other expense $ 39 $ 235$ (196 ) (83 %)
Other expense decreased
Income Tax 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.
Three Months Ended March 31, Change 2021 2020 $ % (in thousands except percentage) Income tax expense $ (40 )$ (2 ) $ (38 ) 1900% 20
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Liquidity and Capital Resources
As of
In
The Company canceled its
Three Months EndedMarch 31, 2021 2020 (in thousands)
Net cash provided by operating activities $ 6,075
(4,236 ) (1,417 ) Net cash provided by financing activities 181,588 7,212
Net increase in cash and cash equivalents
Operating Activities
In the three months ended
In the three months ended
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 the three months ended
In the three months ended
Financing Activities
Cash provided by financing activities includes proceeds from borrowings under our credit facilities and proceeds from issuance of shares.
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In the three months ended
In the three months ended
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.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with
GAAP. The preparation of these financial statements and accompanying disclosures
requires us to make 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.
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