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 expectations regarding the Agreement and Plan of Merger with Synaptics
pursuant to which Osprey Merger Sub will merge with and into the company,
with the company surviving the merger and becoming a wholly owned subsidiary
of Synaptics;
? 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 expectation that IoAT business revenues will represent more than
two-thirds of our total revenues for 2021;
27--------------------------------------------------------------------------------
? 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;
? 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 see 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; and
? Our belief that our available cash and cash equivalents on
should be sufficient to finance our operations for the foreseeable future.
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 ofDSP 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. 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. 28
-------------------------------------------------------------------------------- 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's 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 believe 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 see 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. In the first nine months of 2021, revenues from our IoAT businesses, namely sales from ourUnified Communications , SmartHome and SmartVoice products, were$72.8 million as compared to$50.1 million for the first nine months of 2020 and represented an increase of 45% year-over-year. Revenues from IoAT businesses represented 69% and 61% of total revenues for the comparable periods. Revenues from ourUnified Communications products represented 34% of our total revenues for the first nine months of 2021, as compared to 28% of our total revenues for the first nine months of 2020. Revenues from our SmartVoice products represented 18% of our total revenues for the first nine months of 2021, same as for the first nine months of 2020. Revenues from SmartHome products accounted for 16% of our total revenues for the first nine months of 2021, as compared to 14% of our total revenues for the first nine months of 2020. Year-over-year,Unified Communications products increased by 58%, revenues from SmartVoice products increased by 26% and revenues from SmartHome products increased by 46%. 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. 29
-------------------------------------------------------------------------------- Our revenues were$106.2 million for the first nine months of 2021, a 29% increase as compared to the first nine months of 2020. Revenue derived from cordless segment represented 31% and 39% of our total revenues for the first nine months of 2021 and 2020, respectively, and increased by 3% for the first nine months of 2021, as compared to the same period in 2020. Our gross margin increased to 53.7% of our total revenues for the first nine months of 2021 from 50.7% for the same period of 2020, primary due to (i) higher revenues for the first nine months of 2021, as compared to the same period in 2020, (ii) improvement in production yield and direct contribution of certain products in the first nine months of 2021, and (iii) changes in the mix of products sold and mix of customers for the first nine months of 2021, as compared to the first nine months of 2020 (mainly higher proportion of non-cordless products). Our operating loss was$1.9 million for the first nine months of 2021, as compared to an operating loss of$7.1 million for the first nine months of 2020. The decrease in our operating loss is attributable to an increase in our revenues and gross margins for the first nine months 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$58.9 million for the first nine months of 2021, as compared to$49.0 million for the first nine months of 2020. The increase in our operating expenses for the first nine months of 2021, as compared to the same period of 2020, is attributable mainly to (i) an increase of$5.1 million in our research and development expenses for the first nine months of 2021, as compared to the corresponding period of 2020, (ii) an increase of$2.3 million in our sales and marketing expenses for the first nine months of 2021, as compared to the corresponding period of 2020, (iii) an increase of$2.0 million in our general and administrative expenses for the first nine months 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 nine months of 2021, as compared to the corresponding period of 2020.
As of
Proposed Acquisition by Synaptics
OnAugust 30, 2021 , we entered into an Agreement and Plan of Merger withSynaptics Incorporation, Inc. , aDelaware corporation ("Synaptics"), andOsprey Merger Sub, Inc. , aDelaware corporation and a wholly-owned subsidiary of Synaptics. The consummation of the merger pursuant to the merger agreement is subject to certain closing conditions, including approval by our stockholders. Subject to satisfaction of the closing conditions, we currently expect the acquisition to be completed by year end. See Note 1 in Notes to the Condensed Consolidated Financial Statements for additional information about the merger agreement. 30
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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 our 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. 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 nine month periods endedSeptember 30, 2021 and 2020 (dollars in millions): Three months ended September 30, Nine months ended September 30, 2021 2020 Change 2021 2020 Change Total Revenues (1,2)$ 37.8 $ 26.0 45 %$ 106.2 $ 82.6 29 % Cordless (3,4)$ 10.5 $ 12.5 (16 %)$ 33.4 $ 32.5 3 % Percentage of total revenues 28 % 48 % 31 % 39 % SmartHome (5)$ 6.9 $ 3.7 86 %$ 17.4 $ 12.0 46 % Percentage of total revenues 18 % 14 % 16 % 14 % Unified Communications (6)$ 14.4 $ 2.6 458 %$ 36.2 $ 23.0 58 % Percentage of total revenues 38 % 10 % 34 % 28 % SmartVoice (7,8)$ 6.0 $ 7.2 (17 %)$ 19.1 $ 15.1 26 % Percentage of total revenues 16 % 28 % 18 % 18 %
1. The increase in revenues for the third quarter of 2021 as compared to the same
period in 2020 was primarily as a result of an increase in sales of our
offset by a decrease in sales of our cordless and SmartVoice products for the
third quarter of 2021 as compared to the same period of 2020.
2. The increase in revenues for the first nine months of 2021 as compared to the
same period in 2020 was primarily as a result of an increase in sales of all
of our products.
3. The decrease in cordless revenues for the third quarter of 2021 as compared to
the same period in 2020 was mainly attributable to decreased demand from our
customers.
31--------------------------------------------------------------------------------
4. The increase in cordless revenues for the first nine months of 2021 as
compared to the same period 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.
5. The increase of our SmartHome product sales for the third quarter and first
nine 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.
6. The increase in our
and first nine months of 2021, as compared to same periods in 2020, is mainly
attributable to a growth in market demand for our
products. Within the hybrid work models environment, businesses and employers
around the globe had to adapt the office space to cope with the new challenges
derived from a hybrid workforce. This precipitated a hardware replacement
cycle and purchases of additional devices that support employees at their home
or virtual office.
7. The decrease in our SmartVoice product sales for the third quarter of 2021, as
compared to the same period in 2020, was attributable to decreased demand from
our customers.
8. The increase in our SmartVoice product sales for the first nine months of
2021, as compared to the same period 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 July 1, 2020 .
32
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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 Nine months ended
September 30, September 30,
2021 2020 2021 2020
United States $ 2,509 $ 92 $ 5,243 $ 1,601
Japan 2,278 3,242 9,140 9,208
Europe 2,120 2,004 6,138 4,982
Hong-Kong 9,645 9,472 27,712 24,862
China 7,181 6,710 20,651 16,290
Taiwan 12,453 2,712 30,859 20,815
South Korea 1,201 1,410 4,237 3,734
Other 369 378 2,230 1,103
Total revenues $ 37,756 $ 26,020 $ 106,210 $ 82,595
Sales to our customers in United States increased for the third quarter and
first nine months of 2021 as compared to the same periods of 2020, representing
an increase of 2627% and 227% 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 decreased for the third quarter of 2021 as
compared to the same period of 2020, representing a decrease of 30% in absolute
dollars. The decrease in our sales to Japan for the comparable periods resulted
mainly from a decrease in sales through our distributor, Nexty Electronics
Corporation ("Nexty Electronics "). The decrease in sales to Nexty Electronics
resulted mainly from a decrease in sales to Panasonic Communications Ltd.
("Panasonic").
33-------------------------------------------------------------------------------- Sales to our customers inEurope increased for the third quarter and first nine months of 2021 as compared to the same periods of 2020, representing an increase of 6% and 23%, respectively, in absolute dollars. The increase in our sales toEurope for the comparable periods resulted mainly from an increase in sales to one of our German customers. Sales to our customers inHong Kong increased for the third quarter and first nine months of 2021, as compared to the same periods of 2020, representing an increase of 2% and 11% in absolute dollars, resulting mainly from an increase in sales to our customer,Meizhou Guo Wei Electronics Co. Ltd ("SGW Global"), representing an increase of 22% and 51% in sales for the comparable periods. Sales to our customers inChina increased for the third quarter and first nine months of 2021, as compared to the same periods of 2020, representing an increase of 7% and 27%, respectively, in absolute dollars. The increase in our sales toChina for the comparable periods resulted mainly from an increase in sales to one of our Chinese customers, representing an increase of 5% and 86% in sales for the comparable periods. Sales to our customers inTaiwan increased for the third quarter and first nine months of 2021, as compared to the same periods of 2020, representing an increase of 359% and 48%, respectively, in absolute dollars. The increase in our sales toTaiwan for the third quarter and first nine months 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 Cisco Systems, Inc. ("Cisco"), and other customers inTaiwan . Sales to our customers inSouth Korea decreased for the third quarter of 2021, as compared to the same periods of 2020, representing a decrease of 15% in absolute dollars, resulted mainly from a decrease in sales to one of our South Korean customers. Sales to our customers inSouth Korea increased for the first nine months of 2021, as compared to the same periods of 2020, representing an increase of 13% in absolute dollars, resulted mainly from increased demands from a majority of our customers inSouth Korea . Sales to other customers increased for the first nine months of 2021, as compared to the same period of 2020, representing an increase of 102% in absolute dollars.
The increase in our sales to other customers for the comparable period resulted
mainly from an increase in sales to one of our customers located in
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 nine months periods endedSeptember 30, 2021 and 2020: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 VTech Holdings Ltd. 15 % 23 % 16 % 21 % Cisco 8 % 1 % 10 % 13 % SGW 9 % 11 % 9 % 7 % 34
-------------------------------------------------------------------------------- The following table represents our total revenues, as a percentage of our total revenues, through our main distributors for the three and nine-month periods endedSeptember 30, 2021 and 2020: Three months ended Nine months ended September 30, September 30, 2021 2020 2021 2020
Nexty Electronics (1) 6 % 11 % 8 % 10 % Ascend Technology (2) 40 % 17 % 35 % 31 %
(1) Our distributor,
limited number of customers. None of those customers accounted for 10% or
more of our revenues for the three and nine month periods ended September
30, 2021 and 2020.
(2) Ascend Technology sells our products to a limited number of customers. One
of those customers - Cisco - accounted for 8% and 1% of our total revenues
for the three month periods ended
and 10% and 13% of our total revenues for the nine month periods ended
September 30, 2021 and 2020, respectively. Significant products. Revenues from our digital cordless telephony products represented 31% and 39% of our total revenues for the nine months endedSeptember 30, 2021 and 2020, respectively. Revenues from our digital cordless telephony products represented 28% and 48% of our total revenues for the third 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 34% and 28% of our total revenues for the nine months endedSeptember 30, 2021 and 2020, respectively. Revenues from ourUnified Communications products represented 38% and 10% of our total revenues for the third quarter of 2021 and 2020, respectively. Revenues from our SmartVoice products represented 18% of our total revenues for both nine month periods endedSeptember 30, 2021 and 2020. Revenues from our SmartVoice products represented 16% and 28% of our total revenues for the third quarter of 2021 and 2020, respectively.
Revenues from our SmartHome products represented 16% and 14% of our total
revenues for the nine month periods ended
Gross profit. Gross profit as a percentage of revenues was 55.3 % for the third quarter of 2020 and 50.8% for the third quarter of 2020. Gross profit as a percentage of revenues was 53.7% for the first nine months of 2021 and 50.7% for the first nine months of 2020. The increase in our gross profit for the comparable periods was primarily due to (i) higher revenues for the third quarter and first nine 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$10.9 million for the third quarter of 2021 from$8.1 million for the third quarter of 2020. The increase for the third quarter of 2021 was mainly due to (i) an increase in payroll and payroll related expenses in the amount of$1.8 million , as compared to the third quarter of 2020, mostly due to a temporary payroll reduction in the third quarter of 2020 in consideration of the COVID 19 pandemic as compared to a resumption of normal payroll practices in the third quarter of 2021, an increase in the number of employees and decrease in the USD rate versus the Israeli Shekel in the third quarter of 2021, (ii) an increase in development tools expenses and other materials in the amount of$0.5 million , as compared to the third quarter of 2020, (iii) an increase of$0.3 million in overhead expenses allocated to research and development in the third quarter of 2021, as compared to the third quarter of 2020, and (iv) an increase of$0.2 million in equity-based compensation expenses as compared to the third quarter of 2020. 35
-------------------------------------------------------------------------------- Our research and development expenses, net, increased to$32.0 million for the first nine months of 2021 from$26.9 million for the first nine months of 2020. The increase for the first nine months of 2021 was mainly due to (i) an increase in payroll and payroll related expenses in the amount of$4.3 million , as compared to the first nine months of 2020, mostly due to a temporary payroll reduction in the third quarter of 2020 in consideration of the COVID 19 pandemic as compared to a resumption of normal payroll practices in the third quarter of 2021, an increase in the number of employees and a decrease in theU.S. Dollar versus the Israeli Shekel in the first nine months of 2021, (ii) an increase of$1.1 million in equity based compensation expenses as compared to the first nine months of 2020, and (iii) an increase of$1.0 million in overhead expenses allocated to research and development as compared to the first nine months of 2020. Those increases were partially offset by a decrease in tape out and IP expenses in the amount of$1.3 million , as compared to the first nine months of 2020. Our research and development expenses, net, as a percentage of our total revenues were 29% and 31% for the three months endedSeptember 30, 2021 , and 2020, respectively, and 30% and 33% for the nine months endedSeptember 30, 2021 and 2020, respectively. The decrease in research and development expenses, net, as a percentage of revenues for the third quarter and first nine months of 2021, as compared to the third quarter and first nine months of 2020, was mainly due to an increase in revenues, partially offset by an increase in research and development expenses for the comparable periods. 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 third quarter of 2021 from$4.1 million for the third quarter of 2020. The increase for the third quarter of 2021 was mainly due to (i) an increase in payroll and payroll related expenses in amount of$0.9 million , as compared to the third quarter of 2020, mostly due to a temporary payroll reduction in the third quarter of 2020 in consideration of the COVID 19 pandemic as compared to a resumption of normal payroll practices in the third quarter of 2021, an increase in the number of employees and a decrease in theU.S. dollar versus the Israeli Shekel in the third quarter of 2021 and (ii) an increase of$0.4 million in representatives and distributors sales commissions for the third quarter of 2021 mainly due to increased sales in the third quarter of 2021. Our sales and marketing expenses increased to$15.8 million for the first nine months of 2021 from$13.6 million for the first nine months of 2020. The increase in sales and marketing expenses for the first nine months 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$1.7 million for the first nine months of 2021, as compared to the first nine months of 2020, mostly due to a temporary payroll reduction in the third quarter of 2020 in consideration of the COVID 19 pandemic as compared to a resumption of normal payroll practices in the third quarter of 2021, an increase in the number of employees and a decrease in theU.S. dollar versus the Israeli Shekel in the first nine months of 2021, (ii) an increase of$0.6 million in sales commissions for the first nine months of 2021, mainly due to increased sales in the first nine months of 2021, and (iii) an increase of$0.2 million in equity-based compensation expenses for the first nine months of 2021, as compared to the first nine months of 2020. 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 nine months of 2021, as compared to the first nine months of 2020. Our sales and marketing expenses, net, as a percentage of our total revenues were 14% and 16% for the three months endedSeptember 30, 2021 and 2020, respectively, and 15% and 16% for the first nine months of 2021 and 2020, respectively. The decrease as a percentage of our total revenues for the three and nine month periods endedSeptember 30, 2021 as compared to the comparable periods in 2020, was 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. 36
-------------------------------------------------------------------------------- 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$4.0 million for the third quarter of 2021, from$2.9 million for the third quarter of 2020. The increase in our general and administrative expenses for the third quarter of 2021 was mainly due to (i) an increase of$0.4 million in payroll and payroll related expenses, as compared to the third quarter of 2020, mainly due to a temporary payroll reduction in the third quarter of 2020 in consideration of the COVID 19 pandemic as compared to a resumption of normal payroll practices in the third quarter of 2021, accrual of bonuses under the 2021 executive bonus plans , and a decrease in theU.S. dollar versus the Israeli Shekel in the third quarter of 2021, and (ii) an increase of$0.9 million in legal and accounting expenses for the third quarter of 2021 as compared to the same period in 2020, mostly incurred in connection with the proposed acquisition of the company by Synaptics. The above-mentioned increase was partially offset by a decrease of$0.2 million in consulting expenses (related to the acquisition of SoundChip in the third quarter of 2020) for the third quarter of 2021, as compared to the third quarter of 2020. Our general and administrative expenses were$9.8 million and$7.8 million for the first nine months of 2021 and 2020, respectively. The increase in general and administrative expenses for the first nine months 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 nine months of 2021 in the amount of$0.3 million as compared to the first nine months of 2020, (ii) an increase of$1 million in professional expenses (mainly legal and accounting expenses incurred in connection with the proposed acquisition of the company by Synaptics and directors and officers insurance expenses) as compared to the first nine months of 2020, (iii) an increase of$0.1 million in investor relations expenses for the first nine months of 2021, as compared to the same period in 2020, and (iv) an increase in payroll and payroll related expenses in amount of$0.8 million in the first nine months of 2021 as compared to the first nine months of 2020, mainly as a result of a temporary payroll reduction in the third quarter of 2020 in consideration of the COVID 19 pandemic as compared to a resumption of normal payroll practices in the third quarter of 2021, accrual of bonuses under the 2021 executive bonus plans , and a decrease inU.S. Dollar versus the Israeli Shekel in the first nine months of 2021. The above-mentioned increase was partially offset by a decrease of$0.2 million in consulting expenses (related to the acquisition of SoundChip in the third quarter of 2020) in the first nine months of 2021 as compared to 2020. General and administrative expenses as a percentage of our total revenues were 11% for both the three months endedSeptember 30, 2021 and 2020, and 9% for both the first nine months of 2021 and 2020, respectively. 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
37
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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 31% and 39% of our total revenues for the first nine months of 2021 and 2020, respectively, and 28% and 48% of our total revenues for the third quarter of 2021 and 2020, respectively.
IoAT (Internet of Audio Things) - This segment includes the following products:
(i) 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 16% and 14% of our total revenues for the first nine months of 2021 and 2020, respectively, and 18% and 14% of our revenues for the third quarter of 2021 and 2020, respectively. (ii)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 34% and 28% of our total revenues for the first nine months of 2021 and 2020, respectively, and 38% and 10% of our revenues for the third quarter of 2021 and 2020. (iii) 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 our 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 16% of our total revenues for both first nine month periods of 2021 and 2020, respectively, and 16% and 28% of our revenues for the third quarter of 2021 and 2020. 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. 38 --------------------------------------------------------------------------------
Selected operating results information for each business segment was as follows
for the three months ended
Income (loss) from
Revenues operations
Three months ended September 30,
2021 2020 2021 2020
Unaudited
Cordless $ 10,518 $ 12,542 $ 4,460 $ 4,449
IoAT 27,238 13,478 549 (3,035 )
Total $ 37,756 $ 26,020 $ 5,009 $ 1,414 Selected operating results information for each business segment was as follows
for the nine months ended
Income (loss) from
Revenues operations
Nine months ended September 31,
2021 2020 2021 2020
Unaudited
Cordless $ 33,436 $ 32,538 $ 13,512 $ 11,223
IoAT 72,774 50,057 (2,559 ) (9,184 )
Total $ 106,210 $ 82,595 $ 10,953 $ 2,039
Sales to our customers in the Cordless segment decreased for the third quarter
of 2021, as compared to the third quarter of 2020, representing a decrease of
16% in absolute dollars. The decrease in cordless revenues for the third quarter
of 2021 was mainly attributable to decreased customer demand in all cordless
markets.
Sales to our customers in the Cordless segment increase for the first nine
months of 2021, as compared to the first nine months of 2020, representing an
increase of 3% in absolute dollars. The increase in cordless revenues for 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.
Sales to our customers in the IoAT segment increased for the third quarter and
first nine months of 2021 as compared to the third quarter and first nine months
of 2020, representing an increase of 102% and 45%, respectively, in absolute
dollars.
The increase in IoAT revenues for the third quarter and first nine months 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 third quarter of 2021 and 2020, we recorded an expense of$0.3 million and$0.4 million , respectively, relating to the amortization of intangible assets associated with previous acquisitions. During the first nine months of 2021 and 2020, we recorded an expense of$1.2 million and$0.6 million , respectively, relating to the amortization of intangible assets associated with previous acquisitions. The increase in the first nine months of 2021 was attributable to the amortization of intangible assets related to our acquisition of SoundChip inJuly 2020 . 39 -------------------------------------------------------------------------------- Financial income, net. Financial income, net, amounted to$0.2 and$0.3 million for the three month periods endedSeptember 30, 2021 and 2020, respectively. Financial income, net, amounted to$1.0 million and$1.5 million for the first nine months of 2021 and 2020, respectively. The decrease in financial income in both comparable periods was mainly attributed to the decrease in interest income from marketable securities and deposits. Provision for income taxes. We had$0.5 million of income tax expenses for the third quarter of 2021 as compared to income tax benefit of$0.1 million for the third quarter of 2020. We had$0.8 million of income tax expenses for the first nine months of 2020, as compared to$0.2 million of income tax benefit for the first nine months of 2020. The tax expenses for the third quarter of 2021 was mainly attributable to current tax expenses in an amount of$0.6 million , offset to some extent by income tax benefit in the amount of$0.05 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 third quarter of 2020 was attributable to income in the amount of$0.2 million that resulted from changes in deferred taxes related to intangible assets acquired in current and previous acquisitions and equity-based compensation expenses, offset to some extent by$0.1 million of current taxes. The tax expenses for the first nine months of 2021 was mainly attributable to current tax expenses in an amount of$1.3 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 nine months of 2020 was attributable to income in the amount of$0.25 million that resulted from changes in deferred taxes related to intangible assets acquired in current and previous acquisitions and equity-based compensation expenses, offset to some extent by$0.1 million of current taxes.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities. During the first nine months of 2021, we generated$12.0 million of cash and cash equivalents from our operating activities, as compared to$5.9 million of cash generated from our operating activities for the first nine months of 2020. The increase in net cash provided from operating activities for the first nine months of 2021, as compared to the first nine months of 2020, was mainly as a result of the decrease in net loss for the first nine months of 2021 compared to the first nine months of 2020. 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 nine months of 2021, we purchased$38.9 million of marketable securities and short-term deposits, compared to$80.3 million purchased during the first nine months of 2020. During the first nine months of 2021,$29.3 million of marketable securities and short-term deposits matured and were called by the issuers, as compared to$54.9 million during the first nine months of 2020. During the first nine months of 2021 and 2020,$7.0 million and$24.6 million , respectively, of marketable securities were sold. As ofSeptember 30, 2021 , the amortized cost of our marketable securities and deposits was$112.5 million and their stated market value was$112.4 million representing$0.1 million of unrealized losses.
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 nine months of 2021, we paid an aggregate purchase price of$5.7 million to repurchase approximately 367,000 shares of common stock at an average purchase price of$15.56 per share. During the first nine 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. 40 -------------------------------------------------------------------------------- In addition, during the first nine months of 2021, we received$0.9 million upon the exercise of employee and director stock options. During the first nine months 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 share repurchase programs, including those in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, for the repurchase of our common stock. AtSeptember 30, 2021 , there are no shares of our common stock which are available for repurchase under our board-authorized share repurchase program. As ofSeptember 30, 2021 , we had cash and cash equivalents totaling approximately$20.4 million and marketable securities and time deposits of approximately$112.4 million . Out of total cash, cash equivalents and marketable securities of$132.8 million ,$123.1 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 atSeptember 30, 2021 was approximately$69.0 million , compared to$64.9 as ofSeptember 30, 2020 . The increase in working capital was mainly due to (i) net cash generated from operating activities fromSeptember 30, 2020 throughSeptember 30, 2021 . The above-mentioned increase was partially offset by the repurchase of our common stock in the amount of$5.7 million fromSeptember 30, 2020 throughSeptember 30, 2021 and the replacement of cash and cash equivalents with long term marketable securities. 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.
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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