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AMBARELLA INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Edgar Glimpses Via Acquire Media NewsEdge)
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this Quarterly Report on Form
10-Q, and the consolidated financial statements and notes thereto for the year
ended January 31, 2012 and management's discussion and analysis of our financial
condition and results of operations included in our prospectus filed pursuant to
Rule 424(b) under the Securities Act of 1933, as amended (the "Securities Act")
with the U.S. Securities and Exchange Commission (SEC) on October 10, 2012 (the
"Prospectus").
This Quarterly Report on Form 10-Q, including this "Management's discussion and
analysis of financial condition and results of operations", includes a number of
forward-looking statements that involve many risks and uncertainties.
Forward-looking statements are identified by the use of the words "would,"
"could," "will," "may," "expect," "believe," "should," "anticipate," "outlook,"
"if," "future," "intend," "plan," "estimate," "predict," "potential," "targets,"
"seek" or "continue" and similar words and phrases, including the negatives of
these terms, or other variations of these terms, that denote future events. Such
statements include, but are not limited to, statements concerning our market
opportunity, our ability to develop new solutions, our future financial and
operating performance, sales and marketing strategy, investment strategy,
research and development, customer and supplier relationships, industry trends,
our cash needs and capital requirements, expectations about seasonality, taxes,
and operating expenses. These statements reflect our current views with respect
to future events and our potential financial performance and are subject to
risks and uncertainties that could cause our actual results and financial
position to differ materially and adversely from what is projected or implied in
any forward-looking statements included in this Quarterly Report on Form 10-Q.
These factors include, but are not limited to, the risks described under Item 1A
of Part II - "Risk factors," Item 2 of Part I - "Management's discussion and
analysis of financial condition and results of operations," elsewhere in this
Quarterly Report on Form 10-Q and those discussed in other documents we file
with the SEC. We make these forward-looking statements based upon information
available on the date of this Quarterly Report on Form 10-Q, and we have no
obligation (and expressly disclaim any such obligation) to update or alter any
forward-looking statements, whether as a result of new information or otherwise
except as otherwise required by securities regulations.
Overview
We are a leading developer of semiconductor processing solutions for video that
enable high-definition, or HD, video capture, sharing and display. We combine
our processor design capabilities with our 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. Our system-on-a-chip, or SoC, designs fully
integrate HD video processing, image processing, audio processing and system
functions onto a single chip, delivering exceptional video and image quality,
differentiated functionality and low power consumption.
We sell our solutions to leading original design manufacturers, or ODMs, and
original equipment manufacturers, or OEMs, globally. We refer to ODMs as our
customers and OEMs as our end customers, except as otherwise indicated or as the
context otherwise requires. In the camera market, our solutions
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enable the creation of high-quality video content for wearable sports cameras,
automotive aftermarket cameras, Internet Protocol, or IP, security cameras,
digital still cameras, or DSCs, telepresence cameras, camcorders and pocket
video cameras. In the infrastructure market, our solutions efficiently manage IP
video traffic, broadcast encoding and IP video delivery applications.
Our sales cycles typically require a significant investment of time and a
substantial expenditure of resources before we can realize revenue from the sale
of our solutions, if any. Our typical sales cycle consists of a multi-month
sales and development process involving our customers' system designers and
management and our sales personnel and software engineers. If successful, this
process culminates in a customer's decision to use our solutions in its system,
which we refer to as a design win. Our sales efforts are typically directed to
the OEM of the product that will incorporate our video and image processing
solution, but the eventual design and incorporation of our SoC into the product
may be handled by an ODM on behalf of the OEM. Volume production may begin
within six to 18 months after a design win, depending on the complexity of our
customer's product and other factors upon which we may have little or no
influence. Once one of our solutions has been incorporated into a customer's
design, we believe that our solution is likely to remain a component of the
customer's product for its life cycle because of the time and expense associated
with redesigning a product or substituting an alternative solution . Conversely,
a design loss to a competitor will likely preclude any opportunity for future
revenue from such customer's product.
On October 15, 2012, we closed our initial public offering ("IPO") of 6,000,000
ordinary shares inclusive of 1,095,349 ordinary shares sold by certain
shareholders of the Company. The public offering price of the shares sold in the
offering was $6.00 per share. The total gross proceeds from the offering to us
were $29.4 million and, after deducting underwriting discounts and commissions
and offering expenses, the aggregate net proceeds received by us was
approximately $25.4 million. We did not receive any proceeds from shares sold by
the selling shareholders. Upon the closing of the IPO, all of our outstanding
convertible preference shares converted into ordinary shares on a one-to-one
basis and all outstanding warrants to purchase redeemable convertible preference
shares converted into warrants to purchase ordinary shares. On November 6, 2012,
a total of 900,000 ordinary shares were sold to our IPO underwriters in
connection with their exercise of the over-allotment option. The total gross
proceeds to us from the sale of the over-allotment shares were $5.4 million and,
after deducting underwriting discounts and commissions, the net proceeds
received by us was approximately $5.0 million.
Our total revenue was $35.7 million and $89.5 million for the three and nine
months ended October 31, 2012, respectively, and $28.8 million and $72.7 million
for the three and nine months ended October 31, 2011, respectively. Our net
income was $6.7 million and $14.5 million for the three and nine months ended
October 31, 2012, respectively, and $5.0 million and $8.0 million for the three
and nine months ended October 31, 2011, respectively.
A substantial portion of our revenue is derived from sales through our logistics
provider, Wintech Microelectronics Co., Ltd., ("Wintech"), who serves as our
non-exclusive sales representative in all of Asia other than Japan. For the
three and nine months ended October 31, 2012, approximately 60% and 68% of our
revenue, respectively, was derived from sales through Wintech. For the three and
nine months ended October 31, 2011, approximately 82% and 81% of our revenue,
respectively, was derived from sales through Wintech. Beginning in fiscal year
2013, we directly sell our solutions to Chicony
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Electronics Co., Ltd., ("Chicony"), the ODM of certain of our end customers. For
the three and nine months ended October 31, 2012, approximately 18% and 12% of
our revenue, respectively, was derived from sales to Chicony. We anticipate that
a significant portion of our revenue will continue to be derived from sales
through Wintech and Chicony for the foreseeable future.
Factors Affecting Our Performance
Design Wins. We closely monitor design wins by customer and end market. We
consider design wins to be critical to our future success, although the revenue
generated by each design win can vary significantly. Our long-term sales
expectations are based on forecasts from customers and internal estimations of
customer demand factoring in the expected time to market for end customer
products incorporating our solutions and associated revenue potential.
Pricing, Product Cost and Margins. Our pricing and margins depend on the volumes
and the features of the solutions we provide to our customers. Additionally, we
make significant investments in new solutions for both cost improvements and new
features that we expect to drive revenue and maintain margins. In general,
solutions incorporated into more complex configurations, such as those used in
the infrastructure market, have higher prices and higher gross margins as
compared to solutions sold into the camera market. Our average selling price, or
ASP, can vary by market and application due to market-specific supply and
demand, the maturation of products launched in previous years and the launch of
new products.
We continually monitor the cost of our solutions. As we rely on third-party
manufacturers for the production of our products, we maintain a close
relationship with these suppliers to continually monitor production yields,
component costs and design efficiencies.
Shifting Consumer Preferences. Our revenue is subject to consumer preferences,
regarding form factor and functionality, and how those preferences impact the
video and image capture electronics that we support. For example, improved
smartphone video capture capabilities, and rapid adoption by consumers, has led
to the decline of pocket video cameras aimed at the video and image capture
market. The current video and image capture market is now characterized by a
greater volume of more specialized video and image capture devices that are less
likely to be replaced with smartphones, such as wearable sports cameras,
automotive aftermarket cameras, IP security cameras, high-end DSCs and
enterprise telepresence cameras. This increasing specialization of video capture
devices has changed our customer base and end markets and has impacted our
revenue. In the future, we expect further changes in the market to continue to
impact our business performance.
Continued Concentration of Revenue by End Market. Historically, our revenue has
been significantly concentrated in a small number of end markets. In fiscal year
2010, the majority of our revenue came from the pocket video, camcorder and
infrastructure markets. Over the last two years, we have continued to provide
solutions for the camcorder, infrastructure and pocket video markets, but also
have expanded our focus to include the wearable sports camera, automotive
aftermarket camera, IP security camera, DSC and telepresence camera markets. We
believe our entry into these new markets will continue to facilitate revenue
growth and customer diversification. While we will continue to expand our end
market exposure, we anticipate that sales to a limited number of end markets
will continue to
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account for a significant percentage of our total revenue for the foreseeable
future. Our end market concentration may cause our financial performance to
fluctuate significantly from period to period based on the success or failure of
video capture markets in which we compete.
Ability to Capitalize on Connectivity Trends. Mobile connected devices are
ubiquitous today and play an increasingly prominent role in consumers' lives.
The constant connectivity provided by these devices has created a demand for
connected electronic peripherals such as video and image capture devices. Our
ability to capitalize on these trends by supporting our end customers in the
development of connected peripherals that seamlessly cooperate with other
connected devices and allow consumers to distribute and share video and images
with online media platforms is critical for our success. We have added wireless
communication functionality into our solutions for wearable sports cameras, IP
security cameras and DSCs. The combination of our compression technology with
wireless connectivity enables wireless video streaming and the uploading of
videos and images to the Internet. Our solutions enable IP security camera
systems to stream video content to either cloud infrastructure or connected
mobile devices, and our solutions for wearable sports cameras allow consumers to
quickly stream or upload video and images to social media platforms.
Sales Volume. A typical design win can generate a wide range of sales volumes
for our solutions, depending on the end market demand for our customers'
products. This can depend on several factors, including the reputation of the
end customer, market penetration, product capabilities, size of the end market
that the product addresses and our end customers' ability to sell their
products. In certain cases, we may provide volume discounts on sales of our
solutions, which may be offset by lower manufacturing costs related to higher
volumes. In general, our customers with greater market penetration and better
branding tend to develop products that generate larger volumes over the product
life cycle.
Customer Product Life Cycle. We estimate our customers' product life cycles
based on the customer, type of product and end market. In general, products
launched in the camera market have shorter life cycles than those sold into the
infrastructure market. We typically commence commercial shipments from six to 15
months following a design win; however, in some markets, more lengthy product
and development cycles are possible, depending on the scope and nature of the
project. A portable consumer device typically has a product life cycle of six to
18 months. In the infrastructure market, the product life cycle can range from
24 to 60 months.
Results of Operations
Revenue
We derive substantially all of our revenue from the sale of HD video and image
processing SoC solutions to OEMs and ODMs, either directly or through our
logistics providers. Our SoC solutions have been used in the camera and
infrastructure markets, and we expect these will be the primary markets for our
solutions for the foreseeable future. We derive a substantial portion of our
revenue from sales made indirectly through our logistics provider, Wintech.
We typically experience seasonal fluctuations in our quarterly revenue with our
third fiscal quarter normally being the highest revenue quarter. This
fluctuation has been driven primarily by
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increased sales into the camera market as our customers build inventory in
preparation for the holiday shopping season. More generally, our average selling
prices fluctuate based on the mix of our solutions sold in a period which
reflects the impact of both changes in unit sales of existing solutions as well
as the introduction and sales of new solutions. Our solutions are typically
characterized by a life cycle that begins with higher average selling prices and
lower volumes, followed by broader market adoption, higher volumes and average
selling prices that are lower than initial levels.
The end markets into which we sell our products have seen significant changes as
consumer preferences have evolved in response to new technologies. As a result,
the composition of our revenue may differ meaningfully during periods of
technology or consumer preference changes. We expect shifts in consumer use of
video capture to continue to change over time, as more specialized use cases
emerge and video capture continues to proliferate.
Cost of Revenue and Gross Margin
Cost of revenue includes the cost of materials such as wafers processed by
third-party foundries, costs associated with packaging, assembly and test, and
our manufacturing support operations such as logistics, planning and quality
assurance. Cost of revenue also includes indirect costs such as warranty,
inventory valuation reserves and other general overhead costs.
Gross profit is revenue less cost of revenue. Gross margin is gross profit
expressed as a percentage of revenue. We expect that our gross margin may
fluctuate from period to period as a result of changes in average selling price,
product mix and the introduction of new products by us or our competitors. In
general, solutions incorporated into more complex configurations, such as those
used in the infrastructure market, have higher prices and higher gross margins,
as compared to solutions sold into the camera market. As semiconductor products
mature and unit volumes sold to customers increase, their average selling prices
typically decline. These declines may be paired with improvements in
manufacturing yields and lower wafer, packaging and test costs, which offset
some of the margin reduction that could result from lower selling prices. We
believe that our gross margin will decline in the future as we continue to
penetrate the highly competitive camera market and as we launch our solutions
into new markets.
Research and Development
Research and development expense consists primarily of personnel costs,
including salaries, stock-based compensation and employee benefits. The expense
also includes costs of development incurred in connection with our
collaborations with our foundry vendors, costs of licensing intellectual
property from third parties for product development, costs of development for
software and hardware tools, cost of fabrication of mask sets for prototype
products, and allocated depreciation and facility expenses. All research and
development costs are expensed as incurred. We expect our research and
development expense to increase in absolute dollars as we continue to enhance
and expand our product features and offerings.
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Selling, General and Administrative
Selling, general and administrative expense consists primarily of personnel
costs, including salaries, stock-based compensation and employee benefits for
our sales, marketing, finance, human resources, information technology and
administrative personnel. The expense also includes professional service costs
related to accounting, tax, legal services, and allocated depreciation and
facility expenses. We expect our selling expense to increase in absolute dollars
as we expand the size of our sales and marketing organization to support our
anticipated growth. We expect our general and administrative expense to increase
in absolute dollars and as a percent of revenue as we develop the infrastructure
necessary to operate as a public company, which includes increased audit and
legal fees, costs to comply with the Sarbanes-Oxley Act of 2002 and the rules
and regulations applicable to companies listed on The NASDAQ Stock Market,
investor relations costs, as well as higher insurance premiums.
Other Income (Loss), Net
Other income (loss), net consists primarily of gain and loss from foreign
currency transactions and remeasurements. It also includes gain and loss from
revaluation of fair value of warrants to purchase our redeemable convertible
preference shares and interest earned from investing in money market funds. Upon
the completion of our IPO, all outstanding warrants to purchase convertible
preference shares converted into warrants to purchase ordinary shares. As a
result, there is no future impact to net income from the revaluation of
warrants.
Provision (Benefit) for Income Taxes
We are incorporated in the Cayman Islands and conduct business in several
countries such as the United States, China, Taiwan, Hong Kong, South Korea and
Japan, and we are subject to taxation in those jurisdictions. As such, our
worldwide operating income is subject to varying tax rates and our effective tax
rate is highly dependent upon the geographic distribution of our earnings or
losses and the tax laws and regulations in each geographical region.
Consequently, we have experienced lower effective tax rates as a substantial
percentage of our operations are conducted in lower-tax jurisdictions. If our
operational structure was to change in such a manner that would increase the
amount of operating income subject to taxation in higher-tax jurisdictions, or
if we were to commence operations in jurisdictions assessing relatively higher
tax rates, our effective tax rate could fluctuate significantly on a quarterly
basis and/or be adversely affected.
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The following table sets forth a summary of our statement of operations for the
periods indicated:
Three Months Ended October 31, Nine Months Ended October 31,
2012 2011 2012 2011
(in thousands)
Revenue $ 35,669 $ 28,778 $ 89,548 $ 72,686
Cost of revenue 12,679 10,093 28,821 24,656
Gross profit 22,990 18,685 60,727 48,030
Operating expenses:
Research and development 10,802 9,169 31,631 27,611
Selling, general and
administrative 4,603 3,806 12,812 11,261
Total operating expenses 15,405 12,975 44,443 38,872
Income from operations 7,585 5,710 16,284 9,158
Other income (loss), net 137 3 139 (21 )
Income before income taxes 7,722 5,713 16,423 9,137
Provision for income taxes 1,005 665 1,878 1,093
Net income $ 6,717 $ 5,048 $ 14,545 $ 8,044
Three Months Ended October 31, Nine Months Ended October 31,
2012 2011 2012 2011
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 36 35 32 34
Gross profit 64 65 68 66
Operating expenses:
Research and development 30 32 35 38
Selling, general and
administrative 13 13 14 15
Total operating expenses 43 45 49 53
Income from operations 21 20 19 13
Other income (loss), net - - - -
Income before income taxes 21 20 19 13
Provision (benefit) for income
taxes 3 2 2 2
Net income 18 % 18 % 17 % 11 %
Comparison of the three months ended October 31, 2012 and October 31, 2011
Revenue
Three Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands)
Revenue $ 35,669 $ 28,778 $ 6,891 24 %
Revenue increased for the three months ended October 31, 2012 compared to the
same period in the prior fiscal year primarily due to increased unit sales into
the camera market. Camera market revenue expanded as a result of continuing
adoption of our SoCs by current and new customers selling end products into the
wearable sports camera, automotive aftermarket camera and IP security camera end
markets. The increase in camera market revenue was partially offset by the loss
of revenue from end
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products incorporating our older generation A5 SoCs in the pocket video market,
which was heavily impacted by the closure of the Eastman Kodak Company camera
division. Revenue also increased as a result of the renegotiation of purchase
agreements with an infrastructure customer resulting in the release of
$0.4 million of deferred revenue in the three months ended October 31, 2012.
Cost of Revenue and Gross Margin
Three Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands)
Cost of revenue $ 12,679 $ 10,093 $ 2,586 26 %
Gross profit $ 22,990 $ 18,685 $ 4,305 23 %
Gross margin 64 % 65 % - (1 )%
Cost of revenue increased for the three months ended October 31, 2012 primarily
due to the increased number of SoCs sold, partially offset by a reduction in
cost of certain SoCs due to volume increases.
Gross margin decreased for the three months ended October 31, 2012 due to a
change in revenue mix with lower infrastructure revenues being offset by higher
consumer product revenues at lower gross margins. The lower margin mix of
products was partially offset by lower costs of our high volume SoC's.
Research and Development
Three Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands) Research and development $ 10,802 $ 9,169 $ 1,633 18 %
Research and development expense increased for the three months ended
October 31, 2012 primarily due to an increase in engineering headcount and
additional bonus and stock-based compensation associated with our IPO. Our
research and development engineering headcount increased to 323 at October 31,
2012 compared to 302 at October 31, 2011, resulting in an increase in salary
related expenses of approximately $0.8 million. In the third quarter of fiscal
year 2013, we granted restricted stock units and offered participation in our
new employee stock purchase plan upon completion of our IPO, resulting in an
increase in stock-based compensation expense of approximately $0.4 million. We
also accrued approximately $0.4 million additional bonus expense due to enhanced
overall performance in fiscal year 2013 and approximately $0.4 million for a
one-time IPO bonus to China employees. These increases were partially offset by
decreased product development costs of approximately $0.4 million due to the
timing of new product development efforts.
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Selling, General and Administrative
Three Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands)Selling, general and administrative $ 4,603 $
3,806 $ 797 21 %
Selling, general and administrative expense increased for the three months ended
October 31, 2012 primarily due to increases in facility costs and outside
services to support our expanding business and operations, as well as our IPO.
Other Income, Net
Three Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands)
Other income, net $ 137 $ 3 $ 134 4467 %
Other income, net increased for the three months ended October 31, 2012
primarily due to revaluation of warrants to purchase preference shares. The
warrants converted into warrants to purchase ordinary shares upon our IPO and as
a result, there will be no future impact to net income from the revaluation of
warrants.
Provision for Income Taxes
Three Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands)
Income before income tax $ 7,722 $ 5,713 $ 2,009 35 %
Provision for income taxes $ 1,005 $ 665 $ 340 51 %
The effective tax rate increased to 13.0% for the three months ended October 31,
2012 compared to 11.6% for the three months ended October 31, 2011. Income tax
expense for the three months ended October 31, 2012 increased by $0.3 million
primarily due to the increase in pretax earnings combined with the expiration of
the U.S. federal research credit on December 31, 2011, partially offset by a
change in mix of earnings to lower tax jurisdictions.
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Comparison of the nine months ended October 31, 2012 and October 31, 2011
Revenue
Nine Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands)
Revenue $ 89,548 $ 72,686 16,862 23 %
Revenue increased for the nine months ended October 31, 2012 primarily due to
increased unit sales into the camera market as well as the release of higher
than normal deferred revenue attributable to the infrastructure market. Camera
market revenue expanded as a result of continuing adoption of our SoCs by
current and new customers selling end products into the wearable sports camera,
automotive aftermarket camera and IP security camera end markets. The increase
in camera market revenue was partially offset by the loss of revenue from end
products incorporating our older generation A5 SoCs in the pocket video market,
which was heavily impacted by the closure of the Eastman Kodak Company camera
division. Infrastructure market revenue increased as a result of renegotiations
of purchase agreements with an infrastructure customer resulting in the release
of $3.4 million of deferred revenue in the nine months ended October 31, 2012.
Cost of Revenue and Gross Margin
Nine Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands)
Cost of revenue $ 28,821 $ 24,656 $ 4,165 17 %
Gross profit $ 60,727 $ 48,030 $ 12,697 26 %
Gross margin 68 % 66 % - 2 %
Gross margin increased for the nine months ended October 31, 2012 primarily due
to a change in mix of sales in the camera market with lower margin revenue in
the pocket video market being replaced with revenues in the wearable sports
camera, automotive aftermarket camera and IP security camera end markets, which
typically have higher gross margins. In addition, the release of previously
deferred revenue described above resulted in an increase in gross margin of
approximately 1%.
Research and Development
Nine Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands)
Research and development $ 31,631 $ 27,611 4,020 15 %
Research and development expense increased for the nine months ended October 31,
2012 primarily due to an increase in engineering headcount and additional bonus
and stock-based compensation associated with our IPO. Our research and
development engineering headcount increased to 323 at October 31, 2012 compared
to 302 at October 31, 2011, resulting in an increase in salary related and
stock-based compensation expenses of approximately $2.0 million. In the third
quarter of fiscal year 2013, we granted restricted stock units and offered
participation of our new employee stock purchase plan upon completion of our
IPO, resulting in an increase in stock-based compensation expense of
approximately $0.4 million. We also accrued approximately $0.8 million
additional bonus expense due to enhanced overall performance in fiscal year 2013
and approximately
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$0.4 million for a one-time IPO bonus to China employees. For the nine months
ended October 31, 2012, product development costs incurred at our foundry
vendors also increased by $0.3 million compared to the prior year period due to
timing of our development efforts.
Selling, General and Administrative
Nine Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands)
Selling, general and administrative $ 12,812 $ 11,261 1,551 14 %
Selling, general and administrative expense increased for the nine months ended
October 31, 2012 primarily due to increases in facility costs and outside
services to support our expanding business and operations, as well as our IPO.
Other Income, Net
Nine Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands)
Other income (loss), net $ 139 $ (21 ) 160 -762 %
Other income, net increased for the nine months ended October 31, 2012 primarily
due to revaluation of warrants in the third quarter of fiscal year 2013. The
warrants converted from warrants to purchase preference shares into warrants to
purchase ordinary shares upon IPO and as a result, there will be no future
impact to net income from the revaluation of warrants.
Provision for Income Taxes
Nine Months Ended October 31, Change
2012 2011 Amount %
(dollars in thousands) Income before income tax $ 16,423 $ 9,137 7,286 80 %
Provision for income taxes $ 1,878 $ 1,093
785 72 %
The effective tax rate decreased to 11.4% for the nine months ended October 31,
2012 compared to 12.0% for the nine months ended October 31, 2011. Income tax
expense for the nine months ended October 31, 2012 increased by $0.8 million
primarily due to the increase in pretax earnings combined with the expiration of
the U.S. federal research credit on December 31, 2011, partially offset by a
change in mix of earnings to lower tax jurisdictions.
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Liquidity and Capital Resources
As of October 31, 2012, we had cash of $94.8 million. As of January 31, 2012, we
had cash of $58.9 million.
On October 15, 2012, we closed our IPO of 6,000,000 ordinary shares inclusive of
1,095,349 ordinary shares sold by certain shareholders of the Company. The
public offering price of the shares sold in the offering was $6.00 per share.
The total gross proceeds from the offering to us were $29.4 million and, after
deducting underwriting discounts and commissions and offering expenses, the
aggregate net proceeds received by us was approximately $25.4 million. We did
not receive any proceeds from shares sold by the selling shareholders. On
November 6, 2012, a total of 900,000 ordinary shares were sold to the Company's
IPO underwriters in connection with their exercise of the over-allotment option,
at which point all of the securities registered in the registration statement
were sold and the offering terminated. The net proceeds to the Company from the
sale of the shares in connection with the underwriter's exercise of the
over-allotment option were approximately $5.0 million after deducting
underwriting discounts and commissions. As of October 31, 2012, we had $5.0
million of operating lease obligations.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended October 31,
2012 2011
(in thousands) Net cash provided by operating activities $ 9,052 $
5,739
Net cash used in investing activities (750 ) (1,236 )
Net cash provided by financing activities 27,574 1,177
Net increase in cash $ 35,876 $ 5,680
Net Cash Provided by Operating Activities
The increase in cash flow from operating activities for the nine months ended
October 31, 2012 compared to the same period in fiscal year 2012 was primarily
due to increases in net income and additional adjustments for non-cash items
such as stock-based compensation expense and depreciation and amortization
expenses, which were partially offset by timing of cash receipt and inventory
payment. The increase was also offset by the additional payment of the costs
associated with our IPO in the third quarter of fiscal year 2013.
Net Cash Used in Investing Activities
Net cash used in investing activities decreased primarily due to a $0.6 million
reduction in cash used in the purchase of intangible assets for the nine months
ended October 31, 2012 compared to the nine months ended October 31, 2011.
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Net Cash Provided by Financing Activities
Net cash provided by financing activities increased primarily due to proceeds
from our IPO completed on October 15, 2012, net of underwriting discounts and
commissions and offering expenses.
Operating and Capital Expenditure Requirements
We have generated net income in each quarter beginning with the first quarter of
fiscal year 2010, and we have generated cash from operations in each of fiscal
years 2009 to 2012 and for the nine months ended October 31, 2012. We believe
that our anticipated cash generated from operations and our existing cash
balances will be sufficient to meet our anticipated cash requirements through at
least the next 12 months. In the future, we expect our operating and capital
expenditures to increase as we increase headcount, expand our business
activities and implement and enhance our information technology and enterprise
resource planning systems. We expect our accounts receivable and inventory
balances to increase, and to be partially offset by increases in accounts
payable, which will result in a greater need for working capital. If our
available cash balances are insufficient to satisfy our future liquidity
requirements, we may in the future seek to sell equity or convertible debt
securities or borrow funds commercially. The sale of equity and convertible debt
securities may result in dilution to our shareholders and those securities may
have rights senior to those of our ordinary shares. If we raise additional funds
through the issuance of convertible debt securities, these securities could
contain covenants that would restrict our operations. We may require additional
capital beyond our currently anticipated amounts. Additional capital may not be
available to us on reasonable terms, or at all.
Our short- and long-term capital requirements will depend on many factors,
including the following:
• our ability to generate cash from operations;
• our ability to control our costs;
• the emergence of competing or complementary technologies or products;
• the costs of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights, or participating in
litigation-related activities; and
• our acquisition of complementary businesses, products and technologies.
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Contractual Obligations, Commitments and Contingencies
The following table summarizes our outstanding contractual obligations as of
October 31, 2012:
Payment Due byPeriod as of October 31, 2012
(unaudited, in thousands)
Less than More than All
Total 1 Year 1-3 Years 3-5 Years 5 Years Other
Contractual Obligations
Facilities under operating leases $ 1,774 $ 325 $ 1,069 $ 380 $ - $ -
Technology license or other
obligations under operating leases 3,246 846 2,380 20 - -
Noncancellable purchase
obligations 21,055 21,055 - - - -
Uncertain tax liabilities 1,038 - - - - 1,038
Total $ 27,113 $ 22,226 $ 3,449 $ 400 $ - $ 1,038
As of October 31, 2012, we had non-cancellable purchase obligations with our
independent contract manufacturers of $21.1 million.
Off-Balance Sheet Arrangements
As of October 31, 2012, we did not engage in any off-balance sheet arrangements,
including the use of structured finance, special purpose entities or variable
interest entities.
Recent Authoritative Accounting Guidance
See Note 1 to our unaudited consolidated financial statements for information
regarding recently issued accounting pronouncements.
Critical Accounting Policies and Significant Management Estimates
There have been no material changes to our critical accounting policies and
estimates as compared to the critical accounting policies and estimates
described in our final prospectus filed on October 10, 2012 pursuant to Rule
424(b) with the SEC.
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