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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 30, 2020

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to             

Commission file number: 001-35667

 

AMBARELLA, INC.

(Exact name of registrant as specified in its charter)

 

 

Cayman Islands

 

98-0459628

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

3101 Jay Street

Santa Clara, California

 

95054

(Address of principal executive offices)

 

(Zip Code)

(408) 734-8888

(Registrant’s telephone number, including area code)

 

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Ordinary Shares, $0.00045 Par Value Per Share

AMBA

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

The number of ordinary shares of the Registrant outstanding as of June 1, 2020 was 34,346,866 shares.

 

 

 


AMBARELLA, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION

 

3

 

 

 

 

Item 1.

Financial Statements

 

3

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets at April 30, 2020 and January 31, 2020

 

3

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended April 30, 2020 and 2019

 

4

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended April 30, 2020 and 2019

 

5

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three months ended April 30, 2020 and 2019

 

6

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2020 and 2019

 

7

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

 

Item 4.

Controls and Procedures

 

32

 

 

 

 

PART II. OTHER INFORMATION

 

33

 

 

 

 

Item 1.

Legal Proceedings

 

33

 

 

 

 

Item 1A.

Risk Factors

 

33

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

57

 

 

 

 

Item 6.

Exhibits

 

57

 

 

 

 

Signatures

 

59

 

 

 

 

2


PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

AMBARELLA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

 

 

April 30,

 

 

January 31,

 

 

 

2020

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

236,585

 

 

$

231,403

 

Marketable debt securities

 

 

174,742

 

 

 

173,345

 

Accounts receivable, net

 

 

20,684

 

 

 

18,487

 

Inventories

 

 

21,957

 

 

 

22,971

 

Restricted cash

 

 

9

 

 

 

9

 

Prepaid expenses and other current assets

 

 

4,789

 

 

 

4,975

 

Total current assets

 

 

458,766

 

 

 

451,190

 

Property and equipment, net

 

 

5,401

 

 

 

5,614

 

Deferred tax assets, non-current

 

 

9,943

 

 

 

10,400

 

Intangible assets, net

 

 

16,391

 

 

 

17,826

 

Operating lease right-of-use assets, net

 

 

9,272

 

 

 

9,935

 

Goodwill

 

 

26,601

 

 

 

26,601

 

Other non-current assets

 

 

5,359

 

 

 

5,710

 

Total assets

 

$

531,733

 

 

$

527,276

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

20,589

 

 

 

14,910

 

Accrued and other current liabilities

 

 

27,262

 

 

 

34,970

 

Operating lease liabilities, current

 

 

2,101

 

 

 

2,181

 

Income taxes payable

 

 

749

 

 

 

691

 

Deferred revenue, current

 

 

802

 

 

 

701

 

Total current liabilities

 

 

51,503

 

 

 

53,453

 

Operating lease liabilities, non-current

 

 

7,386

 

 

 

7,975

 

Other long-term liabilities

 

 

17,261

 

 

 

17,776

 

Total liabilities

 

 

76,150

 

 

 

79,204

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Preference shares, $0.00045 par value per share, 20,000,000 shares

   authorized and no shares issued and outstanding at April 30, 2020 and

   January 31, 2020, respectively

 

 

 

 

 

 

Ordinary shares, $0.00045 par value per share, 200,000,000 shares

   authorized at April 30, 2020 and January 31, 2020, respectively;

   34,342,097 shares issued and outstanding at April 30, 2020; 33,805,609

   shares issued and outstanding at January 31, 2020

 

 

15

 

 

 

15

 

Additional paid-in capital

 

 

284,557

 

 

 

261,220

 

Accumulated other comprehensive income

 

 

405

 

 

 

768

 

Retained earnings

 

 

170,606

 

 

 

186,069

 

Total shareholders’ equity

 

 

455,583

 

 

 

448,072

 

Total liabilities and shareholders' equity

 

$

531,733

 

 

$

527,276

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

3


AMBARELLA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended April 30,

 

 

 

 

2020

 

 

2019

 

 

Revenue

 

$

54,645

 

 

$

47,188

 

 

Cost of revenue

 

 

22,625

 

 

 

19,335

 

 

Gross profit

 

 

32,020

 

 

 

27,853

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

34,200

 

 

 

33,017

 

 

Selling, general and administrative

 

 

13,435

 

 

 

13,077

 

 

Total operating expenses

 

 

47,635

 

 

 

46,094

 

 

Loss from operations

 

 

(15,615

)

 

 

(18,241

)

 

Other income, net

 

 

1,278

 

 

 

2,196

 

 

Loss before income taxes

 

 

(14,337

)

 

 

(16,045

)

 

Provision for income taxes

 

 

1,126

 

 

 

1,266

 

 

Net loss

 

$

(15,463

)

 

$

(17,311

)

 

Net loss per share attributable to ordinary shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.45

)

 

$

(0.53

)

 

Diluted

 

$

(0.45

)

 

$

(0.53

)

 

Weighted-average shares used to compute net loss per share attributable to ordinary

   shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

 

34,080,330

 

 

 

32,492,044

 

 

Diluted

 

 

34,080,330

 

 

 

32,492,044

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

4


AMBARELLA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited, in thousands)

 

  

 

Three Months Ended April 30,

 

 

 

 

2020

 

 

2019

 

 

Net loss

 

$

(15,463

)

 

$

(17,311

)

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on investments

 

 

(363

)

 

 

254

 

 

Other comprehensive income (loss), net of tax

 

 

(363

)

 

 

254

 

 

Comprehensive loss

 

$

(15,826

)

 

$

(17,057

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

5


AMBARELLA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Ordinary Shares

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Earnings

 

 

Total

 

Balance--January 31, 2020

 

 

33,805,609

 

 

$

15

 

 

$

261,220

 

 

$

768

 

 

$

186,069

 

 

$

448,072

 

Issuance of shares through employee equity incentive plan

 

 

478,643

 

 

 

 

 

 

6,463

 

 

 

 

 

 

 

 

 

6,463

 

Issuance of shares through employee stock purchase plan

 

 

83,564

 

 

 

 

 

 

2,660

 

 

 

 

 

 

 

 

 

2,660

 

Stock repurchase

 

 

(25,719

)

 

 

 

 

 

 

(1,000

)

 

 

 

 

 

 

 

 

 

 

(1,000

)

Stock-based compensation expense related to stock awards granted to employees and consultants

 

 

 

 

 

 

 

 

15,214

 

 

 

 

 

 

 

 

 

15,214

 

Net unrealized losses on investments - net of taxes

 

 

 

 

 

 

 

 

 

 

 

(363

)

 

 

 

 

 

(363

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,463

)

 

 

(15,463

)

Balance--April 30, 2020

 

 

34,342,097

 

 

$

15

 

 

$

284,557

 

 

$

405

 

 

$

170,606

 

 

$

455,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Ordinary Shares

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Earnings

 

 

Total

 

Balance--January 31, 2019

 

 

32,303,540

 

 

$

15

 

 

$

188,516

 

 

$

97

 

 

$

230,861

 

 

$

419,489

 

Issuance of shares through employee equity incentive plan

 

 

335,301

 

 

 

 

 

 

1,520

 

 

 

 

 

 

 

 

 

1,520

 

Issuance of shares through employee stock purchase plan

 

 

99,759

 

 

 

 

 

 

3,063

 

 

 

 

 

 

 

 

 

3,063

 

Stock-based compensation expense related to stock awards granted to employees and consultants

 

 

 

 

 

 

 

 

15,423

 

 

 

 

 

 

 

 

 

15,423

 

Net unrealized gains on investments - net of taxes

 

 

 

 

 

 

 

 

 

 

 

254

 

 

 

 

 

 

254

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,311

)

 

 

(17,311

)

Balance--April 30, 2019

 

 

32,738,600

 

 

$

15

 

 

$

208,522

 

 

$

351

 

 

$

213,550

 

 

$

422,438

 

 

See accompanying notes to condensed consolidated financial statements.

 

6


AMBARELLA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

Three Months Ended April 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(15,463

)

 

$

(17,311

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,872

 

 

 

2,708

 

Amortization/accretion of marketable debt securities

 

 

10

 

 

 

(378

)

Stock-based compensation

 

 

16,036

 

 

 

16,460

 

Deferred income taxes

 

 

457

 

 

 

21

 

Other non-cash items, net

 

 

(38

)

 

 

142

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,197

)

 

 

(245

)

Inventories

 

 

1,014

 

 

 

617

 

Prepaid expenses and other current assets

 

 

193

 

 

 

1,007

 

Other assets

 

 

351

 

 

 

60

 

Accounts payable

 

 

5,679

 

 

 

3,254

 

Accrued liabilities

 

 

(1,343

)

 

 

(454

)

Income taxes payable

 

 

58

 

 

 

(311

)

Deferred revenue

 

 

101

 

 

 

36

 

Lease Liabilities

 

 

(689

)

 

 

(727

)

Other long-term liabilities

 

 

598

 

 

 

453

 

Net cash provided by operating activities

 

 

7,639

 

 

 

5,332

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of investments

 

 

(49,077

)

 

 

(35,583

)

Sales of investments

 

 

13,601

 

 

 

10,023

 

Maturities of investments

 

 

33,740

 

 

 

29,195

 

Purchase of property and equipment

 

 

(428

)

 

 

(513

)

Net cash provided by (used in) investing activities

 

 

(2,164

)

 

 

3,122

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Stock repurchase

 

 

(1,000

)

 

 

 

Proceeds from exercise of stock options and employee stock purchase plan

 

 

1,912

 

 

 

2,938

 

Payment for intangible asset

 

 

(1,205

)

 

 

(995

)

Net cash provided by (used in) financing activities

 

 

(293

)

 

 

1,943

 

Net increase in cash, cash equivalents and restricted cash

 

 

5,182

 

 

 

10,397

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

231,412

 

 

 

194,058

 

Cash, cash equivalents and restricted cash at end of period

 

$

236,594

 

 

$

204,455

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

370

 

 

$

797

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Unpaid liabilities related to intangible and fixed assets additions

 

$

67

 

 

$

372

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

7


AMBARELLA, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization and Summary of Significant Accounting Policies

Organization

Ambarella, Inc. (the “Company”) was incorporated in the Cayman Islands on January 15, 2004. The Company is a leading developer of low-power semiconductor solutions offering high-definition (HD) and Ultra HD compression, image processing, and deep neural network processing. The Company combines its processor design capabilities with its expertise in video and image processing, algorithms and software to provide a technology platform that is designed to be easily scalable across multiple applications and enable rapid and efficient product development. The Company’s system-on-a-chip, or SoC, designs fully integrated high-definition video processing, image processing, artificial intelligence (AI) computer vision algorithms, audio processing and system functions onto a single chip, delivering exceptional video and image quality, differentiated functionality and low power consumption. The Company is currently addressing a broad range of human and computer vision applications, including professional and consumer security cameras, automotive cameras such as advanced driver assistance systems (ADAS), electronic mirrors, drive recorders, driver/cabin monitoring systems, autonomous driving, and industrial and robotic applications.

The Company sells its solutions to leading original design manufacturers, or ODMs, and original equipment manufacturers, or OEMs, globally.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and notes normally provided in audited financial statements. The accounting policies are described in the “Notes to Consolidated Financial Statements” in the Annual Report on Form 10-K for the 2020 fiscal year filed with the SEC on March 27, 2020 (the “Form 10-K”) and updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”). In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair statement have been included. The results of operations for any interim period are not necessarily indicative of, nor comparable to, the results of operations for any other interim period or for a full fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Form 10-K.

Basis of Consolidation

The Company’s fiscal year ends on January 31. The condensed consolidated financial statements of the Company and its subsidiaries have been prepared in conformity with U.S. GAAP. All intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reported periods. Actual results could differ from those estimates.

On an ongoing basis, management evaluates its estimates and assumptions, including those related to (i) the collectability of accounts receivable; (ii) write down of excess and obsolete inventories; (iii) intangible assets and goodwill; (iv) the estimated useful lives of long-lived assets; (v) impairment of long-lived assets and financial instruments; (vi) warranty obligations; (vii) the valuation of stock-based compensation awards and financial instruments; (viii) the probability of performance objectives achievement; (ix) the realization of tax assets and estimates of tax liabilities, including reserves for uncertain tax positions; and (x) the recognition and disclosure of contingent liabilities. These estimates and assumptions are based on historical experience and on various other factors which the Company believes to be reasonable under the circumstances. The Company may engage third-party valuation specialists to assist with estimates related to the valuation of financial instruments, assets and stock awards associated with various contractual arrangements. Such estimates often require the selection of appropriate valuation methodologies and significant judgment. Actual results could differ from these estimates under different assumptions or circumstances and such differences could be material.

 

8


The Company also assessed the impacts of COVID-19 on the above accounting matters as of April 30, 2020 and through the date of this report. While there was not a material impact as of and for the quarter ended April 30, 2020, future actual magnitude and duration of COVID-19, as well as other associated factors, could result in material negative impacts to its condensed consolidated financial statements in future reporting periods.

Concentration of Risk

The Company’s products are manufactured, assembled and tested by third-party contractors located primarily in Asia. The Company does not have long-term agreements with these contractors. A significant disruption in the operations of one or more of these contractors would impact the production of the Company’s products which could have a material adverse effect on its business, financial condition and results of operations.

A substantial portion of the Company’s revenue is derived from sales through one of its distributors, Wintech Microelectronics Co., Ltd., or Wintech, which serves as its non-exclusive sales representative in Asia other than Japan, and directly to one ODM customer, Chicony Electronics Co., Ltd., or Chicony. Termination of the relationships with these customers could result in a temporary or permanent loss of revenue. Furthermore, any credit issues from these customers could impair their abilities to make timely payment to the Company. See Note 14 for additional information regarding revenue and credit concentration with these customers.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketable debt securities and accounts receivable. The Company maintains its cash primarily in checking accounts with reputable financial institutions. Cash deposits held with these financial institutions may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on deposits of its cash. In order to limit the exposure of each investment, the cash equivalents and marketable debt securities consist primarily of money market funds, asset-backed securities, commercial paper, U.S. government securities and debt securities of corporations which management assesses to be highly liquid. The Company does not hold or issue financial instruments for trading purposes.

The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and customers’ credit worthiness. The Company regularly monitors collections and payments from its customers.

Financial Instruments

On February 1, 2020, the Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, using the modified retrospective transition method. Under this new guidance, the Company recognizes credit losses based on a forward-looking current expected credit losses (CECL) model instead of the previous incurred loss model for financial instruments, including accounts receivable. The Company’s accounts receivable are recorded at invoiced amount less an allowance for any potentially uncollectible amounts. Accordingly, the Company makes estimates of expected credit losses for the allowance for doubtful accounts based upon its assessment of various factors, including historical collection experience, the age of the accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers.

The Company considers all highly liquid debt security investments with original maturities of less than three months at the time of purchase to be cash equivalents. Debt security investments that are highly liquid with original maturities at the time of purchase greater than three months are considered marketable debt securities. The Company classifies these investments as “available-for-sale” (AFS) securities. Instead of the previous "other than temporary" impairment model, the Company now estimates the expected losses whenever a security’s fair value is below its amortized cost basis. The expected loss is computed at an individual security level using the discounted cash flow method with the effective interest rate on the purchase date. In the determination of credit-related losses, the Company excludes securities with zero loss expectation such as assets backed by government agencies. There are various factors considered in its assessment of credit-related losses, including the extent to which the fair value is less than the amortized cost basis, adverse conditions related to an industry or an underlying loan obligator, the payment structure of the security, changes to the rating of the security and other factors that may affect the security credit. The credit-related portion of the loss is recognized in other income, net in the condensed consolidated statements of operations but is limited to the difference between the fair value and the amortized cost basis of the security, adjusted for accrued interest. The non-credit-related portion of the loss is recognized in accumulated other comprehensive income in the condensed consolidated balance sheets.

The cumulative effect adjustment upon the adoption on February 1, 2020 was immaterial. The credit-related losses and associated allowance amount from the Company’s financial instruments were not material as of April 30, 2020, respectively.

 

9


Restricted Cash

Amounts included in restricted cash represent those required to be set aside to secure certain transactions in a foreign entity. As of April 30, 2020 and January 31, 2020, the restricted cash was immaterial. The following table presents cash, cash equivalents and restricted cash reported on the condensed consolidated balance sheets, and the sums are presented on the condensed consolidated statements of cash flows:

 

  

 

As of

 

 

 

April 30, 2020

 

 

January 31, 2020

 

 

April 30, 2019

 

 

January 31, 2019

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

236,585

 

 

$

231,403

 

 

$

204,444

 

 

$

194,047

 

Restricted cash

 

 

9

 

 

 

9

 

 

 

11

 

 

 

11

 

Total as presented in the consolidated statements of cash flows

 

$

236,594

 

 

$

231,412

 

 

$

204,455

 

 

$

194,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inventories

The Company records inventories at the lower of cost or net realizable value. The cost includes materials and other production costs and is computed using standard cost on a first-in, first-out basis. Inventory reserves are recorded for estimated obsolescence or unmarketable inventories based on forecast of future demand and market conditions. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. Once inventory is written down, a new accounting cost basis is established and, accordingly, any associated reserve is not released until the inventory is sold or scrapped. There were no material inventory losses recognized for the three months ended April 30, 2020 and 2019, respectively.

Noncancelable Internal-Use Software License

The Company accounts for a noncancelable on premise internal-use software license as the acquisition of an intangible asset and the incurrence of a liability to the extent that all or a portion of the software licensing fees are not paid on or before the license acquisition date. The intangible asset and related liability are recorded at net present value and interest expense is recorded over the payment term.

 

Leases

 

Effective February 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 842, Leases. As a result, the Company recognizes leases as operating lease right-of-use (“ROU”) assets and corresponding lease liabilities at the lease commencement date based on the present value of future lease payments, while recognizing lease expenses under straight-line method through the lease term. The Company also elected the practical expedient that does not recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases. The Company does not combine lease components with non-lease components, and as a result, the non-lease components are accounted for separately. In determining the present value of lease payments, the Company uses the implicit interest rate if readily determinable. When the implicit rate is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The Company's leases mainly include its worldwide office facilities which are all classified as operating leases. Certain leases include renewal options that are under the Company's discretion. The renewal options are included in the ROU and liability calculation if it is reasonably certain that the Company will exercise the option. The Company's finance leases are immaterial as of April 30, 2020 and January 31, 2020, respectively.

Revenue Recognition

The Company adopted ASC 606, Revenue from Contracts with Customers. As a result, the Company recognizes revenue when control of its goods and services is transferred to its customers. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.

 

10


The sale of semiconductor products accounts for the substantial majority of the Company’s consolidated revenue. Sales agreements with customers are renewable periodically and contain terms and conditions with respect to payment, delivery, warranty, supply and other rights. The Company considers an accepted customer purchase order, governed by sales agreement, to be the contract with the customer. For each contract, the Company considers the promise to transfer tangible products to be the identified performance obligation. Product sales contracts may include volume-based tiered pricing or rebates that are fulfilled in cash or product. In determining the transaction price, the Company accounts for the right of returns, cash rebates, commissions and other pricing adjustments as variable consideration, estimates these amounts based on the expected amount to be provided to customers and reduces the revenue recognized. The Company estimates sales returns and rebates based on the Company’s historical patterns of return and pricing credits. As the Company’s standard payment terms are 30 days to 60 days, the contracts have no financing component. Under ASC 606, the Company estimates the total consideration to be received by using the expected value method for each contract, computes weighted average selling price for each unit shipped in cases where there is a material right due to the presence of volume-based tiered pricing, allocates the total consideration between the identified performance obligations, and recognizes revenue when control of its goods and services is transferred to its customers. The Company considers product control to be transferred at a point in time upon shipment or delivery because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risk and rewards of ownership of the asset.

The Company also enters into fixed-price engineering service agreements with certain customers. These agreements may include multiple performance obligations, such as software development services, licensing of intellectual property and post-contract customer support, or PCS. These multiple performance obligations are highly interdependent, highly interrelated, are typically not sold separately and do not have standalone selling prices. They are all inputs to generate one combined output which is incorporating the Company’s SoC into the customer’s product. Accordingly, the Company determines that they are not separately identifiable and shall be treated as a single performance obligation. Customers usually pay based on milestones achieved. Because payments received do not correspond directly with the value of the Company’s performance to date, for fixed-price engineering services arrangements, revenue is recognized using the time-based straight line method, which best depicts the Company’s performance toward complete satisfaction of the performance obligation based on the nature of such professional services. Revenues from engineering service agreements were not material for the three months ended April 30, 2020 and 2019, respectively.  

Timing of revenue recognition may differ from the timing of invoicing to the Company’s customers. The Company records contract assets when revenue is recognized prior to invoicing. The Company’s contract assets are primarily related to satisfied but unbilled performance obligations associated with its engineering service agreements at the reporting date. As of April 30, 2020 and January 31, 2020, the contract assets for these unbilled receivables were not material. The Company’s contract liabilities consist of deferred revenue. The deferred revenue is primarily related to the portion of a transaction price that exceeds the weighted average selling price for products sold to date under tiered-pricing contracts which contain material rights. This deferred revenue is expected to be recognized over the course of the contract when products are delivered for future pricing below the weighted average selling price of the contract. For the three months ended April 30, 2020 and 2019, the Company did not recognize any material revenue adjustment, respectively, related to performance obligations satisfied in prior periods released from this deferred revenue. As of April 30, 2020 and January 31, 2020, the respective deferred revenues were not material. Additionally, the transaction price allocated to unsatisfied, or partially unsatisfied, purchase orders for contracts that are greater than a year was not material as of April 30, 2020 and January 31, 2020, respectively. The Company also elects not to disclose the value of unsatisfied or partially unsatisfied performance obligations due to original expected contract duration of one year or less and elects to exclude amounts collected from customers for all sales taxes from the transaction price.

Cost of Revenue

Cost of revenue includes cost of materials, cost associated with packaging and assembly, testing and shipping, cost of personnel, stock-based compensation, logistics and quality assurance, warranty cost, royalty expense, write-downs of inventories and allocation of overhead.

Research and Development

Research and development costs are expensed as incurred and consist primarily of personnel costs, product development costs, which include engineering services, development software and hardware tools, license fees, costs of fabrication of masks for prototype products, other development materials costs, depreciation of equipment and tools and allocation of facility costs, net of any research and development grants. As of April 30, 2020, there was approximately $1.2 million of grants recorded in prepaid expenses and other current assets and approximately $2.8 million of grants recorded in other non-current assets in the condensed consolidated balance sheets.  

 

11


Income Taxes

The Company records income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. In estimating future tax consequences, generally all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company applies authoritative guidance for the accounting for uncertainty in income taxes. The guidance requires that tax effects of a position be recognized only if it is “more likely than not” to be sustained based solely on its technical merits as of the reporting date. Upon estimating its tax positions and tax benefits, the Company considers and evaluates numerous factors, which may require periodic adjustments and which may not reflect the final tax liabilities. The Company adjusts its financial statements to reflect only those tax positions that are more likely than not to be sustained under examination.

As part of the process of preparing condensed consolidated financial statements, the Company is required to estimate its taxes in each of the jurisdictions in which it operates. The Company estimates actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as accruals and allowances not currently deductible for tax purposes. These differences result in deferred tax assets, which are included in the condensed consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the condensed consolidated statements of operations become deductible expenses under applicable income tax laws, or loss or credit carryforwards are utilized.

In assessing whether deferred tax assets may be realized, the Company considers whether it is more likely than not that some portion or all of deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.

The Company makes estimates and judgments about its future taxable income based on assumptions that are consistent with its plans and estimates. Should the actual amounts differ from estimates, the amount of valuation allowance could be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the condensed consolidated income statement for the periods in which the adjustment is determined to be required.

Net Income (Loss) Per Ordinary Share

Basic earnings (losses) per share is computed by dividing net income (loss) available to ordinary shareholders by the weighted-average number of ordinary shares outstanding during the period. Diluted earnings (losses) per share is computed by dividing net income (loss) available to ordinary shareholders by the weighted-average number of ordinary shares outstanding during the period increased to include the number of additional ordinary shares that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased under the Company’s employee stock purchase plan, unvested restricted stock and restricted stock units. The dilutive effect of potentially dilutive securities is reflected in diluted earnings (losses) per share by application of the treasury stock method.

Comprehensive Income (Loss)

Comprehensive income (loss) includes unrealized gains or losses from available-for-sale securities that are excluded from net income (loss).

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments are effective for public entities in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company did not early adopt and believes the adoption of this new guidance will not have a material impact on its consolidated financial statements and disclosures.

There were no other significant updates to the recently issued accounting standards other than as disclosed above.

 

 

 

12


 

2. Financial Instruments and Fair Value

The Company invests a portion of its cash in debt securities that are denominated in United States dollars. The investment portfolio consists of money market funds, asset-backed securities, commercial paper, U.S. government securities, and debt securities of corporations. All of the investments are classified as available-for-sale securities and reported at fair value in the condensed consolidated balance sheets as follows:

 

 

 

As of April 30, 2020

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Money market funds

 

$

2,011

 

 

$

 

 

$

 

 

$

2,011

 

Commercial paper

 

 

61,902

 

 

 

 

 

 

 

 

 

61,902

 

Corporate bonds

 

 

103,681

 

 

 

726

 

 

 

(599

)

 

 

103,808

 

Asset-backed securities

 

 

23,742

 

 

 

152

 

 

 

(18

)

 

 

23,876

 

U.S. government securities

 

 

20,059

 

 

 

144

 

 

 

 

 

 

20,203

 

Total cash equivalents and marketable debt securities

 

$

211,395

 

 

$

1,022

 

 

$

(617

)

 

$

211,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of January 31, 2020

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Money market funds

 

$

8,284

 

 

$

 

 

$

 

 

$

8,284

 

Commercial paper

 

 

63,390

 

 

 

 

 

 

 

 

 

63,390

 

Corporate bonds

 

 

95,053

 

 

 

653

 

 

 

 

 

 

95,706

 

Asset-backed securities

 

 

23,062

 

 

 

69

 

 

 

(2

)

 

 

23,129

 

U.S. government securities