DSP GROUP, INC. This report and certain information incorporated herein by reference contain forward-looking statements, which are provided under the "safe harbor" protection of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this report, other than statements that are purely historical in nature, are forward-looking statements. Forward-looking statements are generally written in the future tense and/or are preceded by words such as "will," "may," "should," "could," "expect," "suggest," "believe," "anticipate," "intend," "plan," or other similar words. Forward-looking statements include statements regarding:
? Our expectation that revenues from our IoAT businesses will increase in 2021
as compared to 2020?
? Our expectation that sales of digital cordless telephony products will
continue to represent a substantial percentage of our revenues for the
remainder of 2021;
? Our belief that we are uniquely positioned to leverage our leadership in the
IoAT businesses to meet customers' needs and allow them to develop innovative
products that provide a safer, user friendly, and more productive environment,
both at the office and at home;
25--------------------------------------------------------------------------------
? Our belief that our business is directly benefitting from increased adoption
of voice user interfaces, a surge in voice call traffic, and demand for
intuitive, seamless, and reliable collaboration tools;
? Our belief that even as countries and communities start to re-open, we foresee
a continued reliance on these services as many companies will utilize a hybrid
model of WFH and in-office work;
? Our belief that our company is well positioned to service the market trends
resulting from the pandemic through our best-in-class product offering for UC
endpoints, as well as for portable terminals, headsets, IoT, VUIs, and AI at
the edge;
? Our belief that our available cash and cash equivalents on
should be sufficient to finance our operations for the foreseeable future;
? We believe we are well positioned to service the market trends resulting from
the pandemic through our best-in-class product offering for UC endpoints, as
well as for portable terminals, headsets, IoT, VUIs, and AI at the edge; and
? We expect such revenues to represent more than two-thirds of our total
revenues for 2021. The expected increase in revenues from our IoAT businesses
will be driven mainly by all products within this segment.
All forward-looking statements included in this Quarterly Report on Form 10Q
are made as of the date hereof, based on information available to us as of the
date hereof, and we assume no obligation to update any forward-looking
statement. Many factors may cause actual results to differ materially from those
express or implied by the forward -looking statements contained in this report.
These factors include, but are not limited to, our dependence on one primary
distributor, our OEM relationships and competition, as well as those risks
described in Part II Item 1A "Risk Factors" of this Form 10Q.
Moreover, the full impact of the COVID-19 pandemic and its derivations continues
to evolve as of the date of this report. As such, it is uncertain as to the full
magnitude that the pandemic will have on our financial condition, liquidity, and
future results of operations. Management is actively monitoring the global
situation on the company's financial condition, liquidity, operations,
suppliers, industry, and workforce. Given the daily evolution of the COVID-19
pandemic and the global responses to curb its spread, we are not able to
estimate the full effect of the COVID-19 outbreak and its derivations on the
company's results of operations, financial condition or liquidity for fiscal
year 2021. The following discussions are subject to the future effects of the
COVID-19 pandemic and its derivations.
This Quarterly Report on Form 10Q includes trademarks and registered trademarks
of DSP Group . Products or service names of other companies mentioned in this
Quarterly Report on Form 10Q may be trademarks or registered trademarks of
their respective owners.
Overview
The following discussion and analysis is intended to provide investors with a
narrative of our financial results and an evaluation of our financial condition
and results of operations. The discussion should be read in conjunction with our
condensed consolidated financial statements and notes thereto.
26
--------------------------------------------------------------------------------Business OverviewDSP Group is a leading global provider of wireless chipset solutions for converged communications, delivering system solutions that combine semiconductors and software with reference designs. We provide a broad portfolio of wireless chipsets integrating DECT, Wi-Fi, PSTN and VoIP technologies with state-of-the-art application processors. We also enable converged voice, audio and data connectivity across diverse consumer products - from cordless and VoIP phones to home gateways and connected multimedia screens. Our Home segment consists of cordless telephony products and SmartHome products, which are comprised of our home gateway and home automation products. OurUnified Communications segment consists of a comprehensive set of solutions forUnified Communications (VoIP office products). Our SmartVoice segment consists of products targeted at mobile, IoT and wearable device markets that incorporate our noise suppression and voice quality enhancement HDClear technology, as well as other third-party advanced voice processing, always on and sensor hub functionalities. In 2013, we defined three initiatives aimed at growing market verticals, which align well with our expertise. We called these initiativesUnified Communications , SmartHome, and SmartVoice, which together we referred to as "growth initiatives." Our past research and development investments paid off and our strategy with respect to such initiatives has proven successful. Starting in 2018, our growth initiatives accounted for a majority of our total revenues. Reflecting our success in turning growth initiatives into our core expertise, we changed the terminology for these market verticals that we operate in from "growth initiatives" to Internet of Audio Things or "IoAT" businesses. Furthermore, as ofJanuary 1, 2021 , we changed our reporting segments from Home,Unified Communications and SmartVoice, to Cordless and IoAT. InJuly 2020 , we completed the acquisition ofSoundChip SA , a privately-held Swiss company ("SoundChip") for an initial purchase price of approximately$15 million and agreed to pay future contingent cash milestone payments of up to$6 million upon the achievement of certain customer and product sales milestones. SoundChip is a leading supplier of active noise cancellation (ANC) technology, engineering services, design tools and production-line test systems for headsets. The acquisition combines SoundChip's proven capabilities in hybrid ANC with our SmartVoice™ advanced low-power voice processing platform, algorithms, and mixed-signal expertise to streamline the delivery of cutting-edge wireless and true wireless stereo (TWS) headsets, from concept through to manufacturing. SoundChip operations were consolidated as ofJuly 1 , 2020t and are included in the IoAT segment. Our innovative products and solutions are foundational to the technological shifts that are accelerated by the pandemic. As a result, we are uniquely positioned to leverage our leadership in the IoAT businesses to meet customers' needs and allow them to develop innovative products that provide a safer, user friendly, and more productive environment, both at the office and at home. For instance, with more employees working remotely, and offices reconfiguring workspaces to cater to social distancing requirements, high-quality voice-centric communication is essential. In particular, our business is directly benefitting from increased adoption of voice user interfaces, a surge in voice call traffic, and demand for intuitive, seamless, and reliable collaboration tools. The widespread mandatory stay-at-home orders around the globe created a surge in the number of individuals working from home or other remote locations. In this reality, flexible and collaborative work-from-home (WFH) approaches have become essential for preserving business continuity and productivity in the now "elastic" enterprise. Even as countries and communities start to re-open, we foresee a continued reliance on these services as many companies will utilize a hybrid model of WFH and in-office work. Also, individuals worldwide have recently become sensitive to the health risks of touching commonly-used surfaces, which accelerates the adoption of voice as a user interfaces (VUIs) as a "must have feature" for a broad array of products to address the increasing preference for contactless, germ-free, voice-enabled human-machine interface. Moreover, amid the pandemic, voice call volume increased significantly, which drove demand for the integration of DECT/ULE in home gateways to ensure quality of service and full home coverage. We believe we are well positioned to service the market trends resulting from the pandemic through our best-in-class product offering for UC endpoints, as well as for portable terminals, headsets, IoT, VUIs, and AI at the edge. 27 -------------------------------------------------------------------------------- In the first half of 2021, revenues from our IoAT businesses, namely sales from ourUnified Communications , SmartHome and SmartVoice products, were$45.5 million as compared to$36.6 million for the first half of 2020 and represented an increase of 24% year-over-year. Revenues from IoAT businesses represented 67% and 65% of total revenues for the comparable periods. Revenues from ourUnified Communications products represented 32% of our total revenues for the first half of 2021, as compared to 36% of our total revenues for the first half of 2020. Revenues from our SmartVoice products represented 19% of our total revenues for the first half of 2021, as compared to 14% of our total revenues for the first half of 2020. Revenues from SmartHome products accounted for 15% of our total revenues for both the first half of 2021 and 2020. Year-over-year,Unified Communications products increased by 7%, revenues from SmartVoice products increased by 66% and revenues from SmartHome products increased by 28%. Based on a strong pipeline of design wins, our current mix IoAT business products and anticipated commercialization schedules of customers incorporating such products, we anticipate annual revenues generated from our IoAT businesses to increase in 2021, as compared to 2020. We expect such revenues to represent more than two-thirds of our total revenues for 2021. The expected increase in revenues from our IoAT businesses will be driven mainly by all products within this segment. Our revenues were$68.5 million for the first half of 2021, a 21% increase as compared to the first half of 2020. Revenue derived from cordless segment represented 33% and 35% of our total revenues for the first half of 2021 and 2020, respectively, and increased by 15% for the first half of 2021, as compared to the same period in 2020. Our gross margin increased to 52.8% of our total revenues for the first half of 2021 from 50.6% for the first half of 2020, primary due to (i) higher revenues for the first half of 2021, as compared to the same period in 2020, (ii) improvement in production yield and direct contribution of certain products in the first half of 2021, and (iii) changes in the mix of products sold and mix of customers for the first half of 2021, as compared to the first half of 2020. Our operating loss was$2.2 million for the first half of 2021, as compared to an operating loss of$4.8 million for the first half of 2020. The decrease in our operating loss is attributable to an increase in our revenues and gross margins for the first half of 2021, as compared to the corresponding period of 2020, partially offset by an increase in our operating expenses for the comparable periods. Our operating expenses amounted to$38.3 million for the first half of 2021, as compared to$33.4 million for the first half of 2020. The increase in our operating expenses for the first half of 2021, as compared to the first half of 2020, is attributable mainly to (i) an increase of$2.3 million in our research and development expenses for the first half of 2021, as compared to the corresponding period of 2020, (ii) an increase of$1.1 million in our sales and marketing expenses for the first half of 2021, as compared to the corresponding period of 2020, (iii) an increase of$0.8 million in our general and administrative expenses for the first half of 2021, as compared to the corresponding period of 2020, and (iv) an increase of$0.6 million in our amortization of intangible assets in the first half of 2021, as compared to the corresponding period of 2020. As ofJune 30, 2021 , our principal source of liquidity consisted of cash and cash equivalents of$16.2 million and marketable securities, short and long-term deposits of$113.2 million , totaling$129.4 million . 28 --------------------------------------------------------------------------------
COVID-19 The full impact of the COVID-19 pandemic and its derivations continues to evolve. As such, there is continued uncertainty as to the full magnitude that the pandemic will have on our financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the continuing evolution of the COVID-19 pandemic and the global responses to curb its spread, we are not able to fully estimate the effects of the COVID-19 outbreak and its derivations on our results of operations, financial condition, liquidity or capital resources for 2021. During 2020, we experienced some short-term slowdown in theUnified Communications market due to reduced spending in enterprise IT infrastructure as a result of work-from-home activities. Furthermore, there are certain industry-wide supply chain constraints that are placing certain limitations on our product deliveries. Therefore, while we are confident about our engagement pipeline and the long-term prospects of our IoAT businesses, we may face some near-term challenges that will negatively impact our revenues for 2021.[DW1] The following discussion about our results of operations are subject to the future effects of the COVID-19 pandemic and its derivations. RESULTS OF OPERATIONS The following tables represent our total revenues and our revenues by product family for the three and six month periods endedJune 30, 2021 and 2020 (dollars in millions): Three months ended June 30, Six months ended June 30, 2021 2020 Change 2021 2020 Change Total Revenues (1)$ 35.8 $ 28.3 26 %$ 68.5 $ 56.6 21 % Cordless (2)$ 11.05 $ 9.9 11 %$ 22.9 $ 20.0 15 % Percentage of total revenues 31 % 35 % 33 % 35 % SmartHome (3)$ 5.75 $ 4.3 33 %$ 10.6 $ 8.3 28 % Percentage of total revenues 16 % 15 % 15 % 15 % Unified Communications (4)$ 11.8 $ 10.1 16 %$ 21.8 $ 20.4 7 % Percentage of total revenues 33 % 36 % 32 % 36 % SmartVoice (5)$ 7.2 $ 3.9 82 %$ 13.2 $ 7.9 66 % Percentage of total revenues 20 % 14 % 19 % 14 %
1. The increase in revenues for the second quarter and the first six months of
2021 as compared to the same periods in 2020 was primarily as a result of an
increase in sales of all our products.
2. The increase in cordless revenues for the second quarter and first six months
of 2021 as compared to the same periods in 2020 was mainly attributable to
increased demand in all cordless markets as a result of the COVID-19 pandemic
which resulted in an increase in voice calls.
3. The increase of our SmartHome product sales for the second quarter and first
six months of 2021 as compared to the same periods in 2020 is attributable
mainly to an increase in customer demand for home gateway and home automation
products.
4. The increase in our
quarter and first six months of 2021, as compared to same periods in 2020, is
mainly attributable to a growth in market demand for our Unified
Communications products. Within the hybrid work models environment,
businesses and employers around the globe had to renovate and adapt theoffice space to cope with the new challenges derived from a hybrid workforce.
This precipitated a HW replacement cycle and purchases of additional devices
that support employees at their home or virtual office.
5. The increase in our SmartVoice product sales for the second quarter and first
six months of 2021, as compared to the same periods in 2020, was attributable
to an increase in the number of customers and design wins in this segment, as
well as the integration of SoundChip revenues starting from
29
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The following table shows the breakdown of revenues for all product lines for
the periods based on the geographic location of our customers (in thousands):
Three months ended June 30, Six months ended June 30,
2021 2020 2021 2020
United States $ 1,611 $ 623 $ 2,734 $ 1,509
Japan 3,486 2,338 6,862 5,966
Europe 1,974 1,268 4,018 2,978
Hong-Kong 8,743 8,115 18,067 15,390
China 6,766 5,376 13,470 9,580
Taiwan 10,427 9,171 18,406 18,103
South Korea 1,966 1,126 3,036 2,324
Other 834 319 1,861 725
Total revenues $ 35,807 $ 28,336 $ 68,454 $ 56,575
Sales to our customers in United States increased for the second quarter and
first six months of 2021 as compared to the same periods of 2020, representing
an increase of 158% and 81% in absolute dollars. The increase in our sales to
the United States for the comparable periods resulted mainly from an increase in
sales to one of our U.S. customers.
Sales to our customers in Japan increased for the second quarter and the first
six months of 2021 as compared to the same periods of 2020, representing an
increase of 49% and 15% in absolute dollars. The increase in our sales to Japan
for the comparable periods resulted mainly from an increase in sales through our
distributor, Nexty Electronics Corporation ("Nexty Electronics "). The increase
in sales to Nexty Electronics resulted mainly from an increase in sales to
Panasonic Communications Ltd. ("Panasonic").
Sales to our customers in Europe increased for the second quarter and first six
months of 2021 as compared to the same periods of 2020, representing an increase
of 56% and 35%, respectively, in absolute dollars. The increase in our sales to
Europe for the comparable periods resulted mainly from an increase in sales to
one of our German customers.
Sales to our customers in Hong Kong increased for the second quarter and first
six months of 2021, as compared to the same periods of 2020, representing an
increase of 8% and 17% in absolute dollars, resulting mainly from (i) an
increase in sales to our customer, SGW Global, representing an increase of 91%
and 76% in sales for the comparable periods, and (ii) an increase in sales to
several other customers in Hong Kong .
30
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Sales to our customers in China increased for the second quarter and first half
of 2021, as compared to the same periods of 2020, representing an increase of
26% and 41%, respectively, in absolute dollars. The increase in our sales to
China for the comparable periods resulted mainly from an increase in sales to
our customer, Lenovo, representing an increase of 93% and 197% in sales for the
comparable periods. Sales to our customers in Taiwan increased for the second
quarter and first half of 2021, as compared to the same periods of 2020,
representing an increase of 14% and 2%, respectively, in absolute dollars. The
increase in our sales to Taiwan for the second quarter of 2021, as compared to
the same periods of 2020 resulted mainly from an increase in sales through our
distributor, Ascend Technology Inc. ("Ascend Technology"). The increase in sales
to Ascend Technology resulted mainly from an increase in sales to Avaya and
other customers in Taiwan , offset to some extent by a decrease in sales to
Cisco.
Sales to our customers in South Korea increased for the second quarter and first
six months of 2021, as compared to the same periods of 2020, representing an
increase of 75% and 31%, respectively, in absolute dollars, resulted mainly from
increased demands from our customers in South Korea .
Sales to other customers increased for the second quarter and first six months
of 2021, respectively, as compared to the same periods of 2020, representing an
increase of 161% and 157% in absolute dollars. The increase in our sales to
other customers for the comparable periods resulted mainly from an increase in
sales to one of our customers located in Brazil .
As our products are generally incorporated into consumer electronics products
sold by our OEM customers, our revenues are affected by seasonal buying patterns
of consumer electronics products sold by our OEM customers that incorporate our
products, as well as inventory correction cycles within the market.
Significant customers. The loss of any of our significant customers or
distributors could have a material adverse effect on our business, financial
condition and results of operations. The following table represents our total
revenues, as a percentage of our total revenues, from our significant customers
for the three and six months periods ended June 30, 2021 and 2020:
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
VTech Holdings Ltd. ("VTech") 14% 22% 16% 21%
Cisco 12% 21% 12% 18%
The following table represents our total revenues, as a percentage of our total
revenues, through our main distributors for the three and six-month periods
ended
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
Nexty Electronics (1) 9% 8% 9% 10%
Ascend Technology (2) 35% 39% 33% 38%
(1) Our distributor,
limited number of customers; none of those customers has accounted for 10%
or more of our revenues for the three and six month periods ended
2021 and 2020.
(2) Ascend Technology sells our products to a limited number of customers. One
of those customers - Cisco - accounted for 12% and 21% of our total revenues
for the three month periods ended
12% and 18% of our total revenues for the six month periods ended
2021 and 2020, respectively.
31-------------------------------------------------------------------------------- Significant products. Revenues from our digital cordless telephony products represented 33% and 35% of our total revenues for the six months endedJune 30, 2021 and 2020, respectively. Revenues from our digital cordless telephony products represented 31% and 35% of our total revenues for the second quarter of 2021 and 2020, respectively. We believe that sales of digital cordless telephony products will continue to represent a substantial percentage of our revenues for the remainder of 2021. Revenues from ourUnified Communications products represented 32% and 36% of our total revenues for the six months endedJune 30, 2021 and 2020, respectively. Revenues from ourUnified Communications products represented 33% and 36% of our total revenues for the second quarter of 2021 and 2020, respectively. Revenues from our SmartVoice products represented 19% and 14% of our total revenues for the six months endedJune 30, 2021 and 2020, respectively. Revenues from our SmartVoice products represented 20% and 14% of our total revenues for the second quarter of 2021 and 2020, respectively. Revenues from our SmartHome products represented 15% of our total revenues for both six month periods endedJune 30, 2021 and 2020. Revenues from our SmartHome products represented 16% and 15% of our total revenues for the second quarter of 2021 and 2020, respectively. Gross profit. Gross profit as a percentage of revenues was 53.4 % for the second quarter of 2020 and 50.3% for the second quarter of 2020. Gross profit as a percentage of revenues was 52.8% for the first half of 2021 and 50.6% for the first half of 2020. The increase in our gross profit for the comparable periods was primarily due to (i) higher revenues for the second quarter and first six months of 2021, (ii) an improvement in direct contribution and production yield of certain of our products, and (ii) a change in the mix of products sold and mix of customers.
Cost of goods sold consists primarily of costs of wafer manufacturing and fabrication, assembly and testing of integrated circuit devices and related overhead costs, and compensation and associated expenses related to manufacturing and testing support, inventory obsolesce and logistics personnel.
Research and development expenses, net. Our research and development expenses, net, increased to$10.6 million for the second quarter of 2021 from$8.5 million for the second quarter of 2020. The increase for the second quarter of 2021 was mainly due to (i) an increase in payroll and payroll related expenses in the amount of$1.2 million , as compared to the second quarter of 2020, mostly due to an increase in the number of employees and decrease in the USD rate versus the Israeli Shekel in the second quarter of 2021, (ii) an increase in IP and development tools expenses in the amount of$0.2 million , as compared to the second quarter of 2020 and (iii) an increase of$0.5 million in equity-based compensation expenses as compared to the second quarter of 2020. Our research and development expenses, net, increased to$21.1 million for the first half of 2021 from$18.8 million for the first half of 2020. The increase for the first half of 2021 was mainly due to (i) an increase in payroll and payroll related expenses in the amount of$2.4 million , as compared to the first half of 2020, mostly due to an increase in the number of employees and decrease in the USD rate versus the Israeli Shekel in the first half of 2021 and (ii) an increase of$0.9 million in equity based compensation expenses as compared to the first half of 2020. Those increases were partially offset by a decrease in tape out and IP expenses in the amount of$1.2 million , as compared to the first half of 2020. Our research and development expenses, net, as a percentage of our total revenues were 30% for the three months endedJune 30, 2021 , and 2020 and 31% and 33% for the six months endedJune 30, 2021 and 2020, respectively. The decrease in research and development expenses, net, as a percentage of revenues for the first half of 2021, as compared to the first half of 2020, was mainly due to an increase in revenues, partially offset by an increase in research and development expenses for the comparable periods. 32 -------------------------------------------------------------------------------- Research and development expenses consist mainly of payroll expenses to employees involved in research and development activities, expenses related to tape out and mask work, subcontracting, labor contractors and engineering expenses, depreciation and maintenance fees related to equipment and software tools used in research and development, and facilities expenses associated with and allocated to research and development activities. Sales and marketing expenses. Our sales and marketing expenses increased to$5.3 million for the second quarter of 2021 from$4.4 million for the second quarter of 2020. The increase for the second quarter of 2021 was mainly due to (i) an increase in payroll and payroll related expenses in amount of$0.4 million , as compared to the second quarter of 2020, (ii) an increase of$0.1 million in representatives and distributors sales commissions for the second quarter of 2021, (iii) an amount of$0.15 million in the second quarter of 2021, of amortization of employee's retention expenses related to the acquisition of SoundChip, and (iv) an increase of$0.1 million in equity-based compensation expenses for the second quarter of 2021. Our sales and marketing expenses increased to$10.5 million for the first half of 2021 from$9.4 million for the first half of 2020. The increase in sales and marketing expenses for the first half of 2021, as compared to the comparable period of 2020, was mainly due to (i) an increase in salaries and payroll related expenses in the amount of$0.7 million for the first half of 2021, as compared to the first half of 2020, mainly as a result of an increase in the number of sales and marketing employees, (ii) an increase of$0.2 million in sales commissions for the first half of 2021, (iii) an increase of$0.2 million in equity-based compensation expenses for the first half of 2021, as compared to the first half of 2020, (iv) an increase in the first half of 2021 in an amount of$0.3 million of amortization of employee's retention expenses related to the acquisition of SoundChip. The increase in sales and marketing expenses was partially offset by a decrease of$0.3 million in trade shows and travel expenses for the first half of 2021, as compared to the first half of 2020, and a decrease of$0.2 million in consultants and subcontractors expenses in the first half of 2021, as compared to the same period in 2020. Our sales and marketing expenses, net, as a percentage of our total revenues were 15% and 16% for the three months endedJune 30, 2021 and 2020, respectively, and 15% and 17% for the first half of 2021 and 2020, respectively. The decrease as a percentage of our total revenues for the three and six month periods endedJune 30, 2021 as compared to the comparable periods in 2020was mainly due to an increase in revenues for the comparable periods, partially offset by an increase in sales and marketing expenses in the comparable periods. Sales and marketing expenses consist mainly of sales commissions, payroll expenses to direct sales and marketing employees, travel, trade show expenses, and facilities expenses associated with and allocated to sales and marketing activities. General and administrative expenses. Our general and administrative expenses increased to$3.2 million for the second quarter of 2021, from$2.6 million for the second quarter of 2020. The increase in our general and administrative expenses for the second quarter of 2021 was mainly due to (i) an increase of$0.4 million in payroll and payroll related expenses, as compared to the second quarter of 2020, (ii) an increase of$0.1 million in professional expenses, especially directors and officers insurance expenses in the second quarter of 2021 as compared to the same period in 2020, and (iii) an increase of$0.1 million in equity-based compensation expenses for the second quarter of 2021 as compared to the same period in 2020. Our general and administrative expenses were$5.8 million and$5.0 million for the first half of 2021 and 2020, respectively. The increase in general and administrative expenses for the first half of 2021, as compared to the comparable period of 2020, was mainly due to (i) an increase in equity-based compensation expenses for the first half of 2021 in the amount of$0.3 million as compared to the first half of 2020, (ii) an increase of$0.1 million in professional expenses, especially directors and officers insurance expenses as compared to the first half of 2020, and (iii) an increase in payroll and payroll related expenses in amount of$0.4 million in the first half of 2021 as compared to the first half of 2020. 33
-------------------------------------------------------------------------------- General and administrative expenses as a percentage of our total revenues were 9% for both the three months endedJune 30, 2021 and 2020, and 8% and 9% for the first six months of 2021 and 2020, respectively. The decrease as a percentage of our total revenues for the six month periods endedJune 30, 2021 compared to the comparable period of 2020 was mainly attributable to an increase in revenues for the comparable periods, partially offset by an increase in our general and administrative expenses in the first half of 2021, as compared to the first half of 2020. Our general and administrative expenses consist mainly of payroll expenses for management and administrative employees, accounting and legal fees, expenses related to investor relations as well as facilities expenses associated with general and administrative activities. Description of segments.
We operate under two reportable segments.
Our segment information has been prepared in accordance with ASC 280, "Segment
Reporting." Operating segments are defined as components of an enterprise
engaging in business activities about which separate financial information is
available that is evaluated regularly by our chief operating decision-maker
("CODM") in deciding how to allocate resources and assess performance. Our CODM
is our Chief Executive Officer, who evaluates our performance and allocates
resources based on segment revenues and operating income.
Our reporting segments up until
As a result of an organization change that took place starting in 2021 and the
way management views the business operations, as of
The classification of our business segments is based on a number of factors that management uses to evaluate, view and run our business operations, which include, but are not limited to, customer base, homogeneity of products and technology.
A description of the types of products provided by each business segment is as follows:
Cordless - This segment includes integrated circuit products targeted for cordless phones sold in retail or supplied by telecommunication service providers. Revenues from this segment amounted to 33% and 35% of the Company's total revenues for the first half of 2021 and 2020, respectively, and 31% and 35% of the Company's total revenues for the second quarter of 2021 and 2020, respectively.
IoAT (Internet of Audio Things) - This segment includes the following products:
(iv) SmartHome (home gateways and home automation) - Wireless chipset solutions for converged communication at home. Target applications include: home gateway devices supplied by telecommunication service and security providers with DECT/CAT-iq and ULE functionality for data and two-way voice; home automation and home security. Revenues from SmartHome products amounted to 15% of our total revenues for both the first half of 2021 and 2020, respectively, and 16% and 15% of our revenues for the second quarter of 2021 and 2020, respectively. (v)Unified Communications - Comprehensive suite of solutions for Unified Communications products, including office solutions for businesses of all sizes, from low-cost VoIP terminals with converged voice and data applications, to high-end conferencing systems. Revenues from ourUnified Communications products represented 32% and 36% of our total revenues for the first half of 2021 and 2020, respectively, and 33% and 36% of our revenues for the second quarter of 2021 and 2020. (vi) SmartVoice - SmartVoice hardware and software solutions provide voice activation and recognition, sound event detection (SED), voice enhancement, always-on wake-word detection, far-end noise elimination targeted for mobile phones, mobile headsets/hearables, wearables, tablets, consumer home electronics, security systems and other devices that incorporate the Company's noise suppression and voice quality enhancement HDClear technology. SmartVoice includes an active noise cancellation (ANC) solution for hearables (headphones and true wireless stereo (TWS) earbud) applications. Revenues from our SmartVoice products represented 19% and 14% of our total revenues for the first half of 2021 and 2020, respectively, and 20% and 14% of our revenues for the second quarter of 2021 and 2020. 34 --------------------------------------------------------------------------------
Segment data: We derive the results of our business segments directly from our internal management reporting system and by using certain allocation methods. The accounting policies we use to derive business segment results are substantially the same as those we use for consolidation of our financial statements. The CODM measures the performance of each business segment based on several metrics, including earnings from operations. The CODM uses these results, in part, to evaluate the performance of, and to assign resources to, each of the business segments. We do not allocate to our business segments certain operating expenses, which are managed separately at the corporate level. These unallocated costs include primarily amortization of purchased intangible assets, equity-based compensation expenses, and certain corporate governance costs.
Selected operating results information for each business segment was as follows
for the three months ended
Income (loss) from
Revenues operations
Three months ended March 31,
2021 2020 2021 2020
Unaudited
Cordless $ 11,048 $ 9,939 $ 4,531 $ 3,577
IoAT 24,759 18,397 (614 ) (1,942 )
Total $ 35,807 $ 28,336 $ 3,917 $ 1,635 Selected operating results information for each business segment was as follows
for the six months ended
Income (loss) from
Revenues operations
Six months ended March 31,
2021 2020 2021 2020
Unaudited
Cordless $ 22,918 $ 19,996 $ 9,052 $ 6,774
IoAT 45,536 36,579 (3,107 ) (6,148 )
Total $ 68,454 $ 56,575 $ 5,945 $ 626
Sales to our customers in the Cordless segment increased for the second quarter
and first half of 2021, as compared to the second quarter and first half of
2020, representing an increase of 11% and 15% in absolute dollars, respectively.
The increase in cordless revenues for both the comparable periods was mainly
attributable to increased customer demand in all cordless markets as a result of
the COVID-19 pandemic which resulted in an increase in voice calls.
35
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Sales to our customers in the IoAT segment increased for the second quarter and
first half of 2021 as compared to the second quarter and first half of 2020,
representing an increase of 35% and 24%, respectively, in absolute dollars.
The increase in IoAT revenues for the second quarter and first half of 2021 as
compared to the same periods in 2020 was mainly attributable to an increase in
customer demand for our SmartVoice, Unified communications and SmartHome
products.
The reconciliation of segment operating results information to our consolidated financial information is included in Note N to our condensed consolidated financial statements.
Amortization of intangible assets. For the second quarter of 2021 and 2020, we recorded an expense of$0.4 million and$0.1 million , respectively, relating to the amortization of intangible assets associated with previous acquisitions. During the first half of 2021 and 2020, we recorded an expense of$0.8 million and$0.2 million , respectively, relating to the amortization of intangible assets associated with previous acquisitions. The increase in the second quarter and first half of 2021 was attributable to the amortization of intangible assets related to our acquisition of SoundChip inJuly 2020 . Financial income, net. Financial income, net, amounted to$0.1 and$0.3 million for the three month periods endedJune 30, 2021 and 2020, respectively. Financial income, net, amounted to$0.7 million and$1.2 million for the first six months of 2021 and 2020, respectively. Financial income, net, for the second quarter of 2021 decreased in the amount of$0.2 million as a result of a decrease in marketable securities and deposits interest for the second quarter of 2021, as compared to the second quarter of 2020, due to a decrease in interest rates. Financial income, net, for the first half of 2021 decreased in the amount of$0.5 million as a result of a decrease in marketable securities and deposits interest for the first half of 2021, as compared to the first half of 2020, due to a decrease in interest rates. Provision for income taxes. We had$0.1 million of income tax expenses for the second quarter of 2021 as compared to no income tax expenses for the second quarter of 2020. We had$0.3 million of income tax expenses for the first six months of 2020, as compared to$0.1 million of income tax benefit for the first half of 2020. The tax expenses for the second quarter of 2021 was mainly attributable to current tax expenses in an amount of$0.35 million , offset to some extent by income tax benefit in the amount of$0.25 million that resulted from changes in deferred taxes related to intangible assets acquired in previous acquisitions and equity-based compensation expenses. The tax expenses for the first half of 2021 was mainly attributable to current tax expenses in an amount of$0.7 million , offset to some extent by income tax benefit in the amount of$0.4 million that resulted from changes in deferred taxes related to intangible assets acquired in previous acquisitions and equity-based compensation expenses. The income tax benefit for the first half of 2020 was attributable to income in the amount of$0.1 million from changes in other deferred taxes, mainly related to losses incurred by our Israeli subsidiary for tax purposes, less current tax expenses.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities. During the first six months of 2021, we generated$7.6 million of cash and cash equivalents from our operating activities, as compared to$8.9 million of cash generated from our operating activities for the first half of 2020. The decrease in net cash provided from operating activities for the first half of 2021, as compared to the first half of 2020, was mainly as a result of changes in working capital items for the first half of 2021, as compared to the first half of 2020 (mainly an increase in accounts receivable in the amount of$2.5 million for the first half of 2021, as compared to a decrease in accounts receivable in the amount of$4.8 million for the first half of 2020), offset by some extent by a decrease in net loss for the first half of 2021, as compared to the first half of 2020. 36 -------------------------------------------------------------------------------- Investing activities. We invest excess cash in marketable securities of varying maturity, depending on our projected cash needs for operations, capital expenditures and other business purposes. During the first half of 2021, we purchased$28.2 million of marketable securities and short-term deposits, compared to$48.6 million purchased during the first half of 2020. During the first half of 2021,$20.4 million of marketable securities and short-term deposits matured and were called by the issuers, as compared to$42.4 million during the first half of 2020. During the first half of 2021 and 2020,$4.7 million and$9.6 million , respectively, of marketable securities were sold. As ofJune 30, 2021 , the amortized cost of our marketable securities and deposits was$113.2 million and their stated market value was$113.2 million as well.
Our capital equipment purchases, consisting primarily of research and
development software tools, computers, peripheral, engineering test and lab
equipment, leasehold improvements, furniture and fixtures, totaled
Financing activities. During the first six months of 2021, we paid an aggregate purchase price of$5.2 million to repurchase approximately 331,000 shares of common stock at an average purchase price of$15.63 per share. During the first six months of 2020, we paid an aggregate purchase price of$3.7 million to repurchase approximately 305,000 shares of common stock at an average purchase price of$12.26 per share. In addition, during the first half of 2021, we received$0.8 million upon the exercise of employee and director stock options. During the first half of 2020, we received$1.5 million upon the exercise of employee and director stock options. We cannot predict cash flows from exercises of stock options for future periods. Our board of directors has previously approved a number of shares repurchase programs, including those in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, for the repurchase of our common stock. AtJune 30, 2021 , 27,885 shares of our common stock are available for repurchase under our board-authorized share repurchase program. As ofJune 30, 2021 , we had cash and cash equivalents totaling approximately$16.2 million and marketable securities and time deposits of approximately$113.2 million . Out of total cash, cash equivalents and marketable securities of$129.4 million ,$118.7 million was held by foreign entities. Our intent is to permanently reinvest earnings of our foreign operations and our current operating plans do not demonstrate a need to repatriate foreign earnings to fund ourU.S. operations. However, if these funds were needed for our operations inthe United States , we would be required to accrue and pay taxes in several countries to repatriate these funds. The determination of the amount of additional taxes related to the repatriation of these earnings is not practicable, as it may vary based on various factors such as the location of the cash and the effect of regulation in the various jurisdictions from which the cash would be repatriated. Our working capital atJune 30, 2021 was approximately$59.8 million , compared to$84.1 as ofJune 30, 2020 . The decrease in working capital was mainly due to (i) replacement of short-term marketable securities with long-term marketable securities and deposits, (ii) the repurchase of our common stock in the amount of$5.2 million fromJune 30, 2020 throughJune 30, 2021 and (iii) net cash of$13.9 million used for the acquisition of SoundChip in 2020. The above-mentioned decreases were partially offset by net cash generated from operating activities fromJune 30, 2020 throughJune 30, 2021 . We believe that our current cash, cash equivalents, cash deposits and market securities will be enough to meet our cash requirements for both the short and long term. In addition, as part of our business strategy, we may evaluate potential acquisitions of businesses, products and technologies. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products or businesses. Such potential transactions may require substantial capital resources, which may require us to seek additional debt or equity financing. We cannot assure you that we will be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our current operations, or expand into new markets. Furthermore, we cannot assure you that additional financing will be available to us in any required time frame and on commercially reasonable terms, if at all. See the section of the risk factors entitled "We may engage in future acquisitions that could dilute our stockholders' equity and harm our business, results of operations and financial condition." for more detailed information. 37 --------------------------------------------------------------------------------
Off-Balance sheet arrangements
We do not have any off-balance sheet arrangements, as such term is defined in recently enacted rules by theSecurities and Exchange Commission , that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
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