10-Q 1 amba-10q_20150430.htm 10-Q amba-10q_20150430.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

x

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

For the quarterly period ended April 30, 2015

OR

o

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)

 

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   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes   x     No   ¨

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

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨   (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

The number of ordinary shares, $0.00045 par value, of the Registrant, outstanding as of April 30, 2015 was 31,341,184 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, 2015 and January 31, 2015

 

3

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended April 30, 2015 and 2014

 

4

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended April 30, 2015 and 2014

 

5

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2015 and 2014

 

6

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

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

 

19

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

27

 

 

 

 

Item 4.

Controls and Procedures

 

27

 

 

 

 

PART II. OTHER INFORMATION

 

28

 

 

 

 

Item 1.

Legal Proceedings

 

28

 

 

 

 

Item 1A.

Risk Factors

 

28

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

50

 

 

 

 

Item 6.

Exhibits

 

50

 

 

 

 

Signatures

 

51

 

 

 

 

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,

 

 

 

2015

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

197,311

 

 

$

170,291

 

Marketable securities

 

 

37,917

 

 

 

37,703

 

Accounts receivable, net

 

 

39,193

 

 

 

40,180

 

Inventories

 

 

25,803

 

 

 

21,693

 

Restricted cash

 

 

8

 

 

 

8

 

Deferred tax assets, current

 

 

2,058

 

 

 

1,990

 

Prepaid expenses and other current assets

 

 

2,688

 

 

 

3,506

 

Total current assets

 

 

304,978

 

 

 

275,371

 

Property and equipment, net

 

 

3,022

 

 

 

3,075

 

Deferred tax assets, non-current

 

 

4,000

 

 

 

3,936

 

Other assets

 

 

1,928

 

 

 

1,902

 

Total assets

 

$

313,928

 

 

$

284,284

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

23,990

 

 

 

21,036

 

Accrued liabilities

 

 

15,343

 

 

 

18,699

 

Income taxes payable

 

 

1,306

 

 

 

748

 

Deferred tax liabilities, current

 

 

72

 

 

 

92

 

Deferred revenue, current

 

 

6,219

 

 

 

4,907

 

Total current liabilities

 

 

46,930

 

 

 

45,482

 

Deferred revenue, non-current

 

 

187

 

 

 

198

 

Other long-term liabilities

 

 

1,405

 

 

 

1,393

 

Total liabilities

 

 

48,522

 

 

 

47,073

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

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

   authorized and no shares issued and outstanding at April 30, 2015 and

   January 31, 2015, respectively

 

 

 

 

 

 

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

   authorized at April 30, 2015 and January 31, 2015, respectively;

   31,341,184 shares issued and outstanding at April 30, 2015; 30,837,529

   shares issued and outstanding at January 31, 2015

 

 

14

 

 

 

14

 

Additional paid-in capital

 

 

149,921

 

 

 

140,564

 

Accumulated other comprehensive loss

 

 

(17

)

 

 

(1

)

Retained earnings

 

 

115,488

 

 

 

96,634

 

Total shareholders’ equity

 

 

265,406

 

 

 

237,211

 

Total liabilities and shareholders' equity

 

$

313,928

 

 

$

284,284

 

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,

 

 

 

2015

 

 

2014

 

Revenue

 

$

71,013

 

 

$

40,921

 

Cost of revenue

 

 

25,095

 

 

 

15,325

 

Gross profit

 

 

45,918

 

 

 

25,596

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

16,583

 

 

 

12,914

 

Selling, general and administrative

 

 

9,010

 

 

 

6,755

 

Total operating expenses

 

 

25,593

 

 

 

19,669

 

Income from operations

 

 

20,325

 

 

 

5,927

 

Other income

 

 

27

 

 

 

49

 

Income before income taxes

 

 

20,352

 

 

 

5,976

 

Provision for income taxes

 

 

1,498

 

 

 

716

 

Net income

 

$

18,854

 

 

$

5,260

 

Net income per share attributable to ordinary shareholders:

 

 

 

 

 

 

 

 

Basic

 

$

0.61

 

 

$

0.18

 

Diluted

 

$

0.56

 

 

$

0.17

 

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

   shareholders:

 

 

 

 

 

 

 

 

Basic

 

 

31,099,081

 

 

 

28,976,339

 

Diluted

 

 

33,472,309

 

 

 

31,763,993

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

4


AMBARELLA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)

 

 

 

Three Months Ended April 30,

 

 

 

2015

 

 

2014

 

Net income

 

$

18,854

 

 

$

5,260

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gains (losses) on investments

 

 

(16

)

 

 

8

 

Other comprehensive income (loss), net of tax

 

 

(16

)

 

 

8

 

Comprehensive income

 

$

18,838

 

 

$

5,268

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

5


AMBARELLA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

Three Months Ended April 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

18,854

 

 

$

5,260

 

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

 

 

 

 

 

 

 

 

Depreciation of property and equipment

 

 

367

 

 

 

299

 

Amortization/accretion of marketable securities

 

 

150

 

 

 

104

 

Loss on disposal of long-lived assets

 

 

7

 

 

 

1

 

Stock-based compensation

 

 

5,482

 

 

 

2,874

 

Excess income tax benefits associated with stock-based compensation

 

 

(183

)

 

 

(274

)

Other non-cash items, net

 

 

75

 

 

 

(3

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

987

 

 

 

(2,468

)

Inventories

 

 

(4,110

)

 

 

418

 

Prepaid expenses and other current assets

 

 

833

 

 

 

530

 

Deferred tax assets

 

 

(132

)

 

 

(126

)

Other assets

 

 

(26

)

 

 

43

 

Accounts payable

 

 

2,954

 

 

 

5,087

 

Accrued liabilities

 

 

(2,487

)

 

 

(1,639

)

Income taxes payable

 

 

741

 

 

 

178

 

Deferred tax liabilities

 

 

(20

)

 

 

 

Deferred revenue

 

 

1,301

 

 

 

(14

)

Net cash provided by operating activities

 

 

24,793

 

 

 

10,270

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of investments

 

 

(14,284

)

 

 

(27,306

)

Sales of investments

 

 

5,478

 

 

 

7

 

Maturities of investments

 

 

8,350

 

 

 

905

 

Purchase of property and equipment

 

 

(376

)

 

 

(224

)

Net cash used in investing activities

 

 

(832

)

 

 

(26,618

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options and employee stock purchase plan

 

 

2,876

 

 

 

2,160

 

Excess income tax benefits associated with stock-based compensation

 

 

183

 

 

 

274

 

Net cash provided by financing activities

 

 

3,059

 

 

 

2,434

 

Net increase (decrease) in cash and cash equivalents

 

 

27,020

 

 

 

(13,914

)

Cash and cash equivalents at beginning of period

 

 

170,291

 

 

 

143,394

 

Cash and cash equivalents at end of period

 

$

197,311

 

 

$

129,480

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

174

 

 

$

134

 

Supplemental disclosure of noncash investing activities:

 

 

 

 

 

 

 

 

Increase in accrued liabilities related to non-monetary assets purchases

 

$

20

 

 

$

30

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

6


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 developer of semiconductor processing solutions for video that enable high-definition video capture, sharing and display. 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 integrate high-definition 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.

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 2015 fiscal year filed with the SEC on March 30, 2015 (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 for excess and obsolete inventories; (iii) the estimated useful lives of long-lived assets; (iv) impairment of long-lived assets and financial instruments; (v) warranty obligations; (vi) the valuation of stock-based compensation awards and financial instruments; (vii) the probability of performance objectives achievement; (viii) the realization of tax assets and estimates of tax liabilities, including reserves for uncertain tax positions; and (ix) 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 and assets 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.

 

7


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 its logistics provider, Wintech Microelectronics Co., Ltd., or Wintech, which serves as its non-exclusive sales representative in Asia other than Japan, and through one large direct ODM customer, Chicony Electronics Co., Ltd., or Chicony. Termination of the relationships with these two customers could result in a temporary or permanent loss of revenue and obligation to repurchase unsold product. Furthermore, any credit issues from these two customers could impair their abilities to make timely payment to the Company. See Note 12 for additional information regarding concentration with these two customers.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable. The Company maintains its cash primarily in checking and money market 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 material losses on deposits of its cash. The cash equivalents and marketable securities consist primarily of money market funds, asset-backed securities, commercial paper, U.S. government securities, agency bonds and debt securities of corporations which management assesses to be highly liquid, in order to limit the exposure of each investment. The Company does not hold or issue financial instruments for trading purposes.

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

Cash Equivalents and Marketable Securities

The Company considers all highly liquid investments with original maturities of less than three months at the time of purchase to be cash equivalents. Investments that are highly liquid with original maturities at the time of purchase greater than three months are considered as marketable securities.

The Company classifies these investments as “available-for-sale” securities carried at fair value, based on quoted market prices of similar assets, with the unrealized gains or losses reported, net of tax, as a separate component of shareholders’ equity and included in accumulated other comprehensive income (loss) in the condensed consolidated balance sheets. The amortization of security premiums and accretion of discounts and the realized gains and losses are both recorded in other income (loss), net in the condensed consolidated statements of operations. The Company reviews its investments for possible other-than-temporary impairments on a regular basis. If any loss on investment is believed to be other-than-temporary, a charge will be recorded and a new cost basis in the investment will be established. In evaluating whether a loss on a security is other-than-temporary, the Company considers the following factors: 1) general market conditions, 2) the duration and extent to which the fair value is less than cost, 3) the Company’s intent and ability to hold the investment.

For securities in an unrealized loss position which is deemed to be other-than-temporary, the difference between the security’s then-current amortized cost basis and fair value is separated into (i) the amount of the impairment related to the credit loss (i.e., the credit loss component) and (ii) the amount of the impairment related to all other factors (i.e., the non-credit loss component). The credit loss component is recognized in earnings. The non-credit loss component is recognized in accumulated other comprehensive loss. Due to the relative short term nature of the investments, there have been no other-than-temporary impairments recorded to date.

Inventories

The Company records inventories at the lower of cost or market. 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. If actual market conditions are less favorable than projected, or if future demand for the Company’s products decrease, additional inventory write-downs may be required. Once inventory is written down, a new accounting cost basis has been established and, accordingly, any associated reserve is not reversed until the inventory is sold or scrapped. There have been no material inventory losses recognized to date.

 

8


Revenue Recognition

The Company generates revenue from the sales of its SoCs to OEMs or ODMs, either directly or through logistics providers. Revenue from sales directly to OEMs and ODMs is recognized upon shipment provided persuasive evidence of an arrangement exists, legal title to the products and risk of ownership have transferred, the fee is fixed or determinable, and collection of the resulting receivable is reasonably assured. The Company provides its logistics providers with the rights to return excess levels of inventory and to future price adjustments. Given the inability to reasonably estimate these price changes and returns, revenue and costs related to shipments to logistics providers are deferred until the Company has received notification from its logistics providers that they have sold the Company’s products. Information reported by the Company’s logistics providers includes product resale price, quantity and end customer shipment information as well as remaining inventory on hand. At the time of shipment to a logistics provider, the Company records a trade receivable as there is a legally enforceable right to receive payment, reduces inventory for the value of goods shipped as legal title has passed to the logistics provider and defers the related margin as deferred revenue in the condensed consolidated balance sheets. Any price adjustments are recorded as a change to deferred revenue at the time the adjustments are agreed upon.

Arrangements with certain OEM customers provide for pricing that is dependent upon the end products into which the Company’s SoCs are used. These arrangements may also entitle the Company to a share of the product margin ultimately realized by the OEM. The minimum guaranteed amount of revenue related to the sale of products subject to these arrangements is recognized when all other elements of revenue recognition are met. Any amounts at the date of shipment invoiced in excess of the minimum guaranteed contract price are deferred until the additional amounts the Company is entitled to are fixed or determinable. Additional amounts earned by the Company resulting from margin sharing arrangements and determination of the end products into which the products are ultimately incorporated are recognized when end customer sales volume is reported to the Company.

The Company also enters into engineering service agreements with certain customers. These agreements may include multiple deliverables, such as software development services, licensing for the intellectual properties and post-contract customer support, or PCS. The Company does not sell separately any of the components and does not have Vendor Specific Objective Evidence, or VSOE, for the deliverables. Accordingly, revenues from these agreements are deferred for any amounts billed until delivery of all the elements. If the agreements include PCS, the revenues are recognized ratably over the estimated supporting periods.

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.

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 the Company’s tax positions and tax benefits, the Company considered and evaluated 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, management 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.

 

9


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 income statement for the periods in which the adjustment is determined to be required.

Net Income Per Ordinary Share

The Company applies the two-class method to calculate and present net income per ordinary share. Under the two-class method, net income is allocated between ordinary shares and other participating securities based on their participating rights. Participating securities are defined as securities that may participate in undistributed earnings with ordinary shares, whether that participation is conditioned upon the occurrence of a specified event or not. Basic net income per ordinary share is computed by dividing net income allocable to ordinary shares by the weighted-average number of ordinary shares outstanding for the period. Diluted net income per ordinary share is computed by dividing net income allocable to ordinary shares and income allocable to participating securities, to the extent they are dilutive, by the weighted-average number of ordinary shares outstanding, including the dilutive effects of participating securities on an if-converted basis plus the dilutive effects of ordinary shares. The Company’s potential dilutive ordinary share equivalents consist of incremental ordinary shares issuable upon the exercise of options, upon the issuance of shares pursuant to the Employee Stock Purchase Plan, or ESPP, and upon release of vested restricted stock units.

The Company performs an assessment as to whether instruments granted in stock-based payment transactions are participating securities. Stock-based payment awards that have not yet vested meet the definition of a participating security provided the right to receive the dividend is non-forfeitable and non-contingent. These participating securities should be included in the computation of basic net income per ordinary share under the two-class method. The Company has concluded that its non-vested early-exercised options meet the definition of a participating security and should be included in the computation of basic net income per ordinary share.

Comprehensive Income (Loss)

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

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new guidance clarifies the principles and develops a common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards (the “IFRS”). Under the new guidance, an entity is required to recognize an amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new guidance is effective for the Company beginning in its first quarter of fiscal year 2018. Early adoption is not permitted. The new revenue guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adoption on its financial position, results of operations and disclosures.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. In connection with each annual and interim period, management is required to assess whether there is substantial doubt about an entity’s ability to continue as a going concern within one year after the issuance date, and to provide related footnote disclosures in certain circumstances. The new guidance is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. This ASU is not expected to have an impact on the Company’s financial statements or disclosures.

In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU No. 2015-05 provides the guidance of the accounting for fees paid by a customer in a cloud computing arrangement. If a cloud computing arrangement includes a license to internal-use software, then the entity should account for the software license consistent with the acquisition of internal-use software. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract. The new guidance is effective for the Company beginning in its first quarter of fiscal year 2017. Early adoption is permitted. An entity can elect to adopt the guidance either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. This ASU is not expected to have an impact on the Company’s financial statements or disclosures.

 

 

 

 

10


2. Financial Instruments and Fair Value

Beginning in fiscal year 2015, the Company invested 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, agency bonds 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. The following table summarizes the investments as of April 30, 2015 and January 31, 2015:

 

 

 

As of April 30, 2015

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Money market funds

 

$

1,236

 

 

$

 

 

$

 

 

$

1,236

 

Commercial paper

 

 

1,499

 

 

 

 

 

 

 

 

 

1,499

 

Corporate bonds

 

 

32,560

 

 

 

2

 

 

 

(18

)

 

 

32,544

 

Asset-backed securities

 

 

2,889

 

 

 

 

 

 

 

 

 

2,889

 

U.S. government securities

 

 

999

 

 

 

 

 

 

 

 

 

999

 

Agency bonds

 

 

1,004

 

 

 

 

 

 

(1

)

 

 

1,003

 

Total cash equivalents and marketable securities

 

$

40,187

 

 

$

2

 

 

$

(19

)

 

$

40,170

 

 

 

 

As of January 31, 2015

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Money market funds

 

$

2,427

 

 

$

 

 

$

 

 

$

2,427

 

Commercial paper

 

 

1,497

 

 

 

 

 

 

 

 

 

1,497

 

Corporate bonds

 

 

32,356

 

 

 

9

 

 

 

(10

)

 

 

32,355

 

Asset-backed securities

 

 

3,851

 

 

 

 

 

 

 

 

 

3,851

 

Total cash equivalents and marketable securities

 

$

40,131

 

 

$

9

 

 

$

(10

)

 

$

40,130

 

 

 

 

As of

 

 

 

April 30, 2015

 

 

January 31, 2015

 

 

 

(in thousands)

 

Included in cash equivalents

 

$

2,253

 

 

$

2,427

 

Included in marketable securities

 

 

37,917

 

 

 

37,703

 

Total cash equivalents and marketable securities

 

$

40,170

 

 

$

40,130

 

The contractual maturities of the investments at April 30, 2015 and January 31, 2015 were as follows:

 

 

 

As of

 

 

 

April 30, 2015

 

 

January 31, 2015

 

 

 

(in thousands)

 

Due within one year

 

$

33,672

 

 

$

37,559

 

Due within one to two years

 

 

6,498

 

 

 

2,571

 

Total cash equivalents and marketable securities

 

$

40,170

 

 

$

40,130

 

The unrealized losses on the available-for-sale securities were caused by fluctuations in market value and interest rates as a result of the economic environment. As the decline in market value was attributable to changes in market conditions and not credit quality, and because the Company neither intended to sell nor was it more likely than not that it would be required to sell these investments prior to a recovery of par value, the Company did not consider these investments to be other-than temporarily impaired as of April 30, 2015.

The following fair value hierarchy is applied for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

 

11


Level 3—Unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

The Company measures the fair value of money market funds and agency bonds using quoted prices in active markets for identical assets and classifies them within Level 1. The fair value of the Company’s investments in other debt securities are obtained based on quoted prices for similar asserts in active markets, or model driven valuations using significant inputs derived from or corroborated by observable market data and are classified within Level 2.

The following table presents the fair value of the financial instruments measured on a recurring basis as of April 30, 2015 and January 31, 2015:

 

 

 

As of April 30, 2015

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Money market funds

 

$

1,236

 

 

$

1,236

 

 

$

 

 

$

 

Commercial paper

 

 

1,499

 

 

 

 

 

 

1,499

 

 

 

 

Corporate bonds

 

 

32,544

 

 

 

 

 

 

32,544

 

 

 

 

Asset-backed securities

 

 

2,889

 

 

 

 

 

 

2,889

 

 

 

 

U.S. government securities

 

 

999

 

 

 

 

 

 

999

 

 

 

 

Agency bonds

 

 

1,003

 

 

 

 

 

 

1,003

 

 

 

 

Total cash equivalents and marketable securities

 

$

40,170

 

 

$

1,236

 

 

$

38,934

 

 

$

 

 

 

 

As of January 31, 2015

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(in thousands)

 

Money market funds

 

$

2,427

 

 

$

2,427

 

 

$

 

 

$

 

Commercial paper

 

 

1,497

 

 

 

 

 

 

1,497

 

 

 

 

Corporate bonds

 

 

32,355

 

 

 

 

 

 

32,355

 

 

 

 

Asset-backed securities

 

 

3,851

 

 

 

 

 

 

3,851

 

 

 

 

Total cash equivalents and marketable securities

 

$

40,130

 

 

$

2,427

 

 

$

37,703

 

 

$

 

 

 

3. Inventories

Inventory at April 30, 2015 and January 31, 2015 consisted of the following:

 

 

 

As of

 

 

 

April 30, 2015

 

 

January 31, 2015

 

 

 

(in thousands)

 

Work-in-progress

 

$

18,165

 

 

$

13,805

 

Finished goods

 

 

7,638

 

 

 

7,888

 

Total

 

$

25,803

 

 

$

21,693

 

 

 

 

12


4. Property and Equipment, Net

Depreciation expense was approximately $0.4 million and $0.3 million for the three months ended April 30, 2015 and 2014, respectively. Property and equipment at April 30, 2015 and January 31, 2015 consisted of the following:

 

 

 

As of

 

 

 

April 30, 2015

 

 

January 31, 2015

 

 

 

(in thousands)

 

Computer equipment and software

 

$

5,455

 

 

$

5,310

 

Machinery and equipment

 

 

2,263

 

 

 

2,234

 

Furniture and fixtures

 

 

456

 

 

 

456

 

Leasehold improvements

 

 

1,228

 

 

 

1,215

 

Construction in progress

 

 

172

 

 

 

64

 

 

 

 

9,574

 

 

 

9,279

 

Less: accumulated depreciation and amortization

 

 

(6,552

)

 

 

(6,204

)

Total property and equipment, net

 

$

3,022

 

 

$

3,075

 

 

 

5. Accrued Liabilities

Accrued liabilities at April 30, 2015 and January 31, 2015 consisted of the following:

 

 

 

As of

 

 

 

April 30, 2015

 

 

January 31, 2015

 

 

 

(in thousands)

 

Accrued employee compensation

 

$

5,709

 

 

$

11,318

 

Accrued warranty

 

 

201

 

 

 

203

 

Accrued rebates

 

 

515

 

 

 

254

 

Accrued product development costs

 

 

7,200

 

 

 

5,004

 

Other accrued liabilities

 

 

1,718

 

 

 

1,920

 

Total accrued liabilities

 

$

15,343

 

 

$

18,699

 

 

 

6. Deferred Revenue and Deferred Cost

Deferred revenue and related cost at April 30, 2015 and January 31, 2015 consisted of the following:

 

 

 

As of

 

 

 

April 30, 2015

 

 

January 31, 2015

 

 

 

(in thousands)

 

Deferred revenue on product shipments

 

$

6,600

 

 

$

4,663

 

Deferred revenue from licenses & services

 

 

1,637

 

 

 

1,610

 

Deferred cost of revenue on product shipments

 

 

(1,831

)

 

 

(1,168

)

Total deferred revenue, net

 

$

6,406

 

 

$

5,105

 

 

 

7. Capital Stock

Preference shares

After completion of the Company’s initial public offering, or IPO, a total of 20,000,000 preference shares, with a $0.00045 par value per share, were authorized. There were no preference shares issued and outstanding as of April 30, 2015 and January 31, 2015, respectively.

Ordinary shares

As of April 30, 2015 and January 31, 2015, a total of 200,000,000 ordinary shares were authorized.

 

13


On February 1, 2015, the Company added 1,387,689 ordinary shares to the ordinary shares reserved for issuance, pursuant to an “evergreen” provision contained in the 2012 Equity Incentive Plan, or EIP. Pursuant to such provision, on February 1st of each fiscal year, the number of ordinary shares reserved for issuance under the EIP is automatically increased by a number equal to the lesser of (i) 3,500,000 ordinary shares, (ii) four and one half percent (4.5%) of the aggregate number of ordinary shares outstanding on January 31st of the preceding fiscal year, or (iii) a lesser number of shares that may be determined by the Company’s Board of Directors.

On February 1, 2015, the Company added 385,469 ordinary shares to the ordinary shares reserved for issuance, pursuant to an “evergreen” provision contained in the 2012 Employee Stock Purchase Plan, or ESPP. Pursuant to such provision, on February 1st of each fiscal year, the number of ordinary shares reserved for issuance under the ESPP is automatically increased by a number equal to the lesser of (i) 1,500,000 ordinary shares, (ii) one and one quarter percent (1.25%) of the aggregate number of ordinary shares outstanding on such date, or (iii) an amount determined by the Company’s Board of Directors or a duly authorized committee of the Board of Directors.

As of April 30, 2015 and January 31, 2015, the following ordinary shares were reserved for future issuance under the EIP and ESPP:

 

 

 

As of

 

 

 

April 30, 2015

 

 

January 31, 2015

 

Shares reserved for options and restricted stock units

 

 

5,993,251

 

 

 

5,055,845

 

Shares reserved for employee stock purchase plan

 

 

1,000,672

 

 

 

667,990

 

 

 

8. Stock-based Compensation

The following table presents the classification of stock-based compensation for the periods indicated:

 

 

 

Three Months Ended April 30,

 

 

 

2015

 

 

2014

 

 

 

(in thousands)

 

Stock-based compensation:

 

 

 

 

 

 

 

 

Cost of revenue

 

$

124

 

 

$

59

 

Research and development

 

 

3,094

 

 

 

1,590

 

Selling, general and administrative

 

 

2,264

 

 

 

1,225

 

Total stock-based compensation

 

$

5,482

 

 

$

2,874

 

As of April 30, 2015, total unrecognized compensation cost related to unvested stock options and unvested restricted stock units was $11.3 million and $46.1 million, respectively, and is expected to be recognized over a weighted-average period of 2.49 years and 2.72 years, respectively.

The following table sets forth the weighted-average assumptions used to estimate the fair value of stock options and employee stock purchase plan awards for the periods indicated:

 

 

 

Three Months Ended April 30,

 

 

 

2015

 

 

2014

 

Stock Options:

 

 

 

 

 

 

 

 

Volatility

 

 

60

%

 

 

65

%

Risk-free interest rate

 

 

1.74

%

 

 

1.95

%

Expected term (years)

 

6.08

 

 

 

6.05

 

Dividend yield

 

 

0

%

 

 

0

%

Employee stock purchase plan awards:

 

 

 

 

 

 

 

 

Volatility

 

 

63

%

 

 

57

%

Risk-free interest rate

 

 

0.15

%

 

 

0.08

%

Expected term (years)

 

 

0.5

 

 

 

0.5

 

Dividend yield

 

 

0

%

 

 

0

%

 

14


The following table summarizes stock option activities for the three months ended April 30, 2015:

 

 

 

Option Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Intrinsic

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

Value of

 

 

Remaining

 

 

Aggregate

 

 

 

 

 

 

 

Weighted-

 

 

Average

 

 

options

 

 

Contactual

 

 

Intrinsic

 

 

 

 

 

 

 

Average

 

 

Grant-date

 

 

Exercised

 

 

Term

 

 

Value

 

 

 

Shares

 

 

Exercise Price

 

 

Fair Value

 

 

(in thousands)

 

 

(in years)

 

 

(in thousands)

 

Outstanding at January 31, 2015

 

 

2,281,909

 

 

$

13.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

66,100

 

 

 

64.39

 

 

$

36.30

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(272,334

)

 

 

7.88

 

 

 

 

 

 

$

16,431

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(5,580

)

 

 

24.62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at April 30, 2015

 

 

2,070,095

 

 

 

15.28

 

 

 

 

 

 

 

 

 

 

6.36

 

 

$

119,790

 

Exercisable at April 30, 2015

 

 

1,399,112

 

 

$

7.99

 

 

 

 

 

 

 

 

 

 

 

5.32

 

 

$

91,169

 

Vested and expected to vest at April 30, 2015

 

 

2,027,575

 

 

$

14.84

 

 

 

 

 

 

 

 

 

 

 

6.31

 

 

$

118,221

 

Exercisable shares include options with early exercise rights. The vested and expected-to-vest options are calculated based on vesting schedule of each grant as of the reporting date.

The intrinsic value of options outstanding, exercisable and expected-to-vest options are calculated based on the difference between the fair market value of the Company’s ordinary shares on the reporting date and the exercise price. The closing price of the Company’s ordinary shares was $73.15 on April 30, 2015, as reported by The NASDAQ Global Market. The intrinsic value of exercised options is calculated based on the difference between the fair market value of the Company’s ordinary shares on the exercise date and the exercise price.

The following table summarizes restricted stock units activities for the periods indicated:

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Grant-Date

 

 

 

Shares

 

 

Fair Value

 

Unvested at January 31, 2015

 

 

1,980,448

 

 

$

26.82

 

Granted

 

 

22,000

 

 

 

64.39

 

Vested

 

 

(178,534

)

 

 

23.87

 

Forfeited

 

 

(2,459

)

 

 

35.97

 

Unvested at April 30, 2015

 

 

1,821,455

 

 

$

27.55

 

As of April 30, 2015, the aggregate intrinsic value of unvested restricted stock units was $133.2 million.

Non-employee Stock-based Compensation

The fair value of awards granted to non-employees is determined on the date of grant and remeasured at the end of each reporting period until such awards vest. The non-employee stock-based compensation was not material for the three months ended April 30, 2015 and 2014, respectively.

 

 

 

15


9. Net Income Per Ordinary Share

The following table sets forth the computation of basic and diluted net income per ordinary share for the periods indicated:

 

 

 

Three Months Ended April 30,

 

 

 

2015

 

 

2014

 

 

 

(in thousands, except share and per share data)

 

Numerator:

 

 

 

 

 

 

 

 

Net income

 

$

18,854

 

 

$

5,260

 

Less: amount allocable to unvested early exercised options

 

 

 

 

 

(2

)

Net income allocable to ordinary shareholders - basic

 

$

18,854

 

 

$

5,258

 

Undistributed earnings reallocated to ordinary shareholders

 

 

 

 

 

 

Net income allocable to ordinary shareholders - diluted

 

$

18,854

 

 

$

5,258

 

Denominator: