UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
OR
For the transition period from to
Commission File Number
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” "accelerated filer,” “smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of May 9, 2022, the registrant had
2
PCTEL, INC.
Form 10-Q
For the Quarterly Period Ended March 31, 2022
TABLE OF CONTENTS
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PART I |
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Item 1 |
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4 |
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5 |
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Item 2 |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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29 |
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Item 3 |
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35 |
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Item 4 |
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35 |
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PART II |
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36 |
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Item 1 |
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36 |
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Item 1A |
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36 |
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Item 2 |
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36 |
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Item 3 |
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36 |
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Item 4 |
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36 |
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Item 5 |
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36 |
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Item 6 |
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37 |
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38 |
3
PART I – FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
PCTEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share data)
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March 31, |
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December 31, |
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2022 |
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2021 |
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ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investment securities |
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Accounts receivable, net of allowances of $ |
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December 31, 2021, respectively |
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Inventories, net |
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Prepaid expenses and other assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Intangible assets, net |
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Other noncurrent assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Total current liabilities |
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Long-term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, $ |
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March 31, 2022 and December 31, 2021, respectively, and |
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shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PCTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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REVENUES |
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$ |
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$ |
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COST OF REVENUES |
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GROSS PROFIT |
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OPERATING EXPENSES: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Amortization of intangible assets |
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Restructuring expenses |
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Total operating expenses |
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OPERATING LOSS |
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Other income, net |
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LOSS BEFORE INCOME TAXES |
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Expense for income taxes |
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NET LOSS |
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$ |
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$ |
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Net Loss per Share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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Weighted Average Shares: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
PCTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
(in thousands)
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Three Months Ended March 31, |
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2022 |
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2021 |
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NET LOSS |
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$ |
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$ |
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OTHER COMPREHENSIVE LOSS: |
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Foreign currency translation adjustments |
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COMPREHENSIVE LOSS |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
PCTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
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Accumulated |
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Total |
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Additional |
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Other |
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Stockholders' |
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Common |
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Paid-In |
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Accumulated |
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Comprehensive |
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Equity of |
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Stock |
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Capital |
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Deficit |
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Income (Loss) |
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PCTEL, Inc. |
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BALANCE at DECEMBER 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Stock-based compensation expense |
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Cancellation of shares for payment of withholding tax |
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Dividends paid ($ |
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Net loss |
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Change in cumulative translation adjustment, net |
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( |
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BALANCE at MARCH 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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BALANCE at DECEMBER 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation expense |
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Issuance of shares for stock purchase plans and stock options |
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Cancellation of shares for payment of withholding tax |
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( |
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Repurchase of common stock |
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Dividends paid ($ |
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Net loss |
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( |
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( |
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Change in cumulative translation adjustment, net |
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( |
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BALANCE at MARCH 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements
7
PCTEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Operating Activities: |
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Net loss |
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( |
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$ |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Intangible asset amortization |
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Stock-based compensation |
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Loss on disposal of property and equipment |
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Restructuring costs |
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( |
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Bad debt provision |
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( |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other assets |
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( |
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Accounts payable |
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( |
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Income taxes payable |
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Other accrued liabilities |
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Deferred revenue |
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Net cash (used in) provided by operating activities |
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Investing Activities: |
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Capital expenditures |
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Purchase of short-term investments |
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Redemptions/maturities of short-term investments |
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Net cash (used in) provided by investing activities |
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Financing Activities: |
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Proceeds from issuance of common stock |
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Payment of withholding tax on stock-based compensation |
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( |
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Principal payments on finance leases |
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Purchase of common stock from repurchase program |
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Cash dividends |
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Net cash used in financing activities |
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( |
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Net (decrease) increase in cash and cash equivalents |
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( |
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Effect of exchange rate changes on cash |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and Cash Equivalents, End of Period |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
8
PCTEL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except share and per share data and as otherwise noted)
1. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal, recurring nature that are considered necessary for a fair presentation have been included. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2021 by PCTEL, Inc. (the “2021 Form 10-K”).
Throughout this Quarterly Report on Form 10-Q, including under Part 1, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we disclose certain macroeconomic impacts of the ongoing coronavirus (“COVID-19”) pandemic and the ensuing supply chain disruption. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that remain highly uncertain at this time.
Nature of Operations
PCTEL, Inc. (“PCTEL” or the Company) was incorporated in California in 1994 and reincorporated in Delaware in 1998. The Company is a leading global provider of wireless technology, including purpose-built Industrial IoT devices, antenna systems, and test and measurement solutions. PCTEL solves complex wireless challenges to help organizations stay connected, transform, and grow and it has expertise in RF, digital and mechanical engineering. The Company has two businesses (antennas & Industrial IoT devices and test & measurement products).
The Company’s principal executive offices are located at 471 Brighton Drive, Bloomingdale, Illinois 60108. The telephone number at
that address is (630) 372-6800 and the website is www.pctel.com. Additional information about the Company can be obtained on the Company’s website; however, the information within, or that can be accessed through, the Company’s website, is not part of this Quarterly Report on Form 10-Q.
Basis of Consolidation
The unaudited interim condensed consolidated financial statements of the Company include the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, and the condensed consolidated statements of cash flows, the condensed consolidated statements of operations, condensed consolidated statements of comprehensive loss, and the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2022 and 2021, respectively. The interim condensed consolidated financial statements are unaudited but reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for a fair presentation of the interim period financial statements. The condensed consolidated balance sheet as of December 31, 2021 is derived from the audited financial statements as of December 31, 2021.
The unaudited interim condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The significant accounting policies followed by the Company are set forth in the 2021 Form 10-K. There were no material changes in the Company’s significant accounting policies during the three months ended March 31, 2022. In addition, the Company reaffirms the use of estimates in the preparation of the financial statements as set forth in the 2021 Form 10-K. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the 2021 Form 10-K. The results of operations for the period ended March 31, 2022 may not be indicative of the results for the period ending December 31, 2022.
Foreign Operations
Cross-border transactions, both with external parties and in our internal operations, result in exposure to foreign exchange rate fluctuations. We are exposed to currency risk by having foreign locations by having suppliers and employees outside the U.S. Fluctuations could have an adverse effect on our results of operations and cash flows. We manage certain operating activities at the local level with revenues, costs, assets, and liabilities generally being denominated in local currencies. However, our results of operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar. Gains and losses resulting from transactions originally in foreign currencies and then translated
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into U.S. dollars are included in the condensed consolidated statements of operations. For the three months ended March 31, 2022, approximately
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-14). This new guidance eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The changes are effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (LIBOR) or another reference rate expected to be discontinued. Topic 848 is effective upon issuance and generally can be applied through December 31, 2022. The Company does not expect the adoption of this standard to have an impact on the financial statements or the related disclosures.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if the acquirer had originated the contracts. This ASU should be applied prospectively to business combinations occurring on or after the effective date of the update. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period, but should be applied to all acquisitions occurring in the annual period of adoption. The Company is currently evaluating the impact of this ASU on our consolidated financial statements and related disclosures.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 831): Disclosures by Business Entities about Government Assistance. This Update, which aims to increase transparency of government assistance, requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model. Under this ASU, an entity is required to disclose (1) the types of assistance, (2) an entity’s accounting for assistance, and (3) the effect of the assistance on an entity’s financial statements. This Update is effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early adoption is permitted. The Company evaluated the effect of adoption of the update and concluded it does not have an impact on the consolidated financial statements or the related disclosures.
2. Fair Value of Financial Instruments
The Company follows accounting guidance for fair value measurements and disclosures, which establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:
Level 1: inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Cash equivalents are measured at fair value and investments are recognized at amortized cost in the Company’s financial statements. Accounts receivable is a financial asset with a carrying value that approximates fair value due to the short-term nature of these assets. Accounts payable, accrued employee compensation and certain operating liabilities are financial liabilities with a carrying value that approximates fair value due to the short-term nature of these liabilities.
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3. Loss per Share
The following table is the computation of basic and diluted income per share:
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Three Months Ended March 31, |
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2022 |
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2021 |
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Basic Income Per Share computation: |
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Numerator: |
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Net loss |
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$ |
( |
) |
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$ |
( |
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Denominator: |
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Weighted shares outstanding - basic |
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Net loss per common share - basic |
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$ |
( |
) |
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$ |
( |
) |
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Diluted Income Per Share computation: |
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Denominator: |
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Weighted shares outstanding - basic |
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Restricted shares subject to vesting |
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Weighted shares outstanding - diluted |
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Net loss per common share - diluted |
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$ |
( |
) |
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$ |
( |
) |
4. Business Combinations
On April 30, 2021, the Company acquired all the outstanding stock of Smarteq, a Swedish company based in Kista, Sweden, that designs antennas for specialized Industrial IoT and vehicular applications, pursuant to a Share Sale and Purchase Agreement (the “SPA”) between PCTEL and Allgon Aktiebolag, a Swedish company and holder of the outstanding stock of Smarteq. Smarteq owns all the outstanding stock of SAS Smarteq France (“Smarteq France”), which engages in sales of Smarteq products.
Pursuant to the SPA, the Company acquired Smarteq for a cash purchase price consisting of SEK
Fair Value of Purchase Consideration:
The following table summarizes the fair value of purchase consideration to acquire Smarteq:
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Fair value of purchase consideration |
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Cash |
$ |
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Working capital adjustment |
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( |
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Total purchase consideration |
$ |
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Purchase Price Allocation:
The Company acquired all of the assets and liabilities of Smarteq, including cash of $
The following is an allocation of the purchase price as of the April 30, 2021 closing date based upon an estimate of the fair value of the assets acquired and liabilities assumed by the Company in the acquisition:
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Purchase Price Allocation: |
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Cash |
$ |
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Accounts receivable |
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Prepaid expenses and other assets |
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Inventories |
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Right of use assets |
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Property and equipment |
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Intangible assets |
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Accounts payable |
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( |
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Accrued liabilities |
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( |
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Lease liabilities - short-term |
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( |
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Lease liabilities - long-term |
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( |
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Debt |
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( |
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Identifiable assets acquired |
$ |
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Goodwill |
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Total purchase price |
$ |
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The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets:
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Finite-lived assets: |
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Customer relationships |
$ |
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Trade names |
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Technology |
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Other intangible assets |
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$ |
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Intangible Assets: |
Useful Life |
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Customer relationships |
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Trade names |
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Technology |
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Other intangible assets |
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Assumptions in the Allocations of Purchase Price
The Company prepared the purchase price allocation for the acquired Smarteq assets and in doing so utilized reports of a third-party valuation expert to calculate the fair value of the identifiable intangible assets. Estimates of fair value required management to make significant estimates and assumptions. The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that the Company believes will result from integrating the Smarteq operations with the operations of the Company.
The fair value of the customer relationships was determined using the multi-period excess earnings method (“MPEEM”). MPEEM estimates the value of an intangible asset by quantifying the amount of residual (or excess) cash flows generated by the future customer cash flows, and discounting those cash flows to the present value. Future cash flows for customers were estimated based on forecasted revenue and costs, taking into account the growth rates, customer attrition, and contributory charges. The fair value of the customer backlog was calculated using the present value of the cash flows associated with the acquired backlog.
The fair values of the trade names, developed technology, and exclusive rights were determined using the relief-from-royalty method. The relief-from-royalty method is a specific application of the discounted-cash-flow method, which is a form of the income approach. It is based on the principle that ownership of the intangible asset relieves the owner of the need to pay a royalty to another party in exchange for rights to use the asset. Key assumptions to estimate the hypothetical royalty rate include observable royalty rates, which are royalty rates in negotiated licenses and market-based royalty rates which are royalty rates found in available market data for licenses involving similar assets.
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The fair value of covenants not to compete was estimated using the with-or-without method. The with-and-without method estimates the value of an intangible asset by quantifying the loss of economic profits under a hypothetical condition where only the subject intangible does not exist and needs to be re-created. Projected revenues, operating expenses and cash flows are calcu