What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-26 compared with 2022-12-02 · 123 added, 158 removed, 136 unchanged (67% of the section changed)

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Factors that could cause actual results to differ materially from those predicted include, but are not limited to:

• risks related to changes in general economic conditions such as economic slowdowns, inflation, stagflation, rising interest rates, and recessions or political conditions, such as the tariffs and trade restrictions with China, Russia and other foreign nations, and specific conditions in the end markets we address, including the continuing volatility in the technology sector and semiconductor industry and the U.S.

• risks related to changes in general macroeconomic conditions such as economic slowdowns, inflation, stagflation, rising interest rates, financial institution instability and recessions or political conditions, such as the tariffs and trade restrictions with China, Russia and other foreign nations, and specific conditions in the end markets we address, including the continuing volatility in the technology sector and semiconductor industry and the U.S.

National Science and Technology Council’s designation of semiconductors as a critical and emerging technology;

• risks related to cancellations, rescheduling or deferrals of significant customer orders or shipments, as well as the ability of our customers to manage inventory;

• risks related to the impact of the COVID-19 pandemic or other future pandemics, on the global economy and on our customers, suppliers, employees and business;

• risks related to our ability to scale our business;

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• risks related to the ability of our customers, particularly in jurisdictions such as China that may be subject to trade restrictions (including the need to obtain export licenses) to develop their own solutions or acquire fully developed solutions from third-parties;

• risks related to our ability to design, develop and introduce new and enhanced products, in particular in the 5G and Cloud markets, as well as for Artificial Intelligence (AI) solutions, in a timely and effective manner, as well as our ability to anticipate and adapt to changes in technology;

• risks related to our ability to successfully integrate and to realize anticipated benefits or synergies, on a timely basis or at all, in connection with our past, current, or any future acquisitions, divestitures, significant investments or strategic transactions;

• risks related to the impact of the COVID-19 pandemic or other future pandemics, on the global economy and on our customers, suppliers, employees and business;

• risks related to our debt obligations;

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• risks related to our ability to attract, retain and motivate a highly skilled workforce, especially engineering, managerial, sales and marketing personnel;

• risks related to any current and future litigation, regulatory investigations, or contractual disputes with customers

that could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully maintain and grow our business;

• risks related to any current and future litigation, regulatory investigations, or contractual disputes with customers that could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully maintain and grow our business;

• risks related to gain or loss of a design win or key customer;

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• risks related to failures to qualify our products or our suppliers’ manufacturing lines;

• risks related to our ability to develop and introduce new and enhanced products, in particular in the 5G and Cloud markets, in a timely and effective manner, as well as our ability to anticipate and adapt to changes in technology;

• risks related to failures to protect our intellectual property, particularly outside the United States;

• risks related to the potential impact of a significant events or natural disasters, or the effects of climate change (such as droughts, flooding, wildfires, increased storm severity, sea level rise, and power outages), particularly in certain regions in which we operate or own buildings, such as Santa Clara, California, and where our third-party manufacturing partners or suppliers operate, such as Taiwan and elsewhere in the Pacific Rim;

• risks related to the potential impact of significant events or natural disasters, or the effects of climate change (such as droughts, flooding, wildfires, increased storm severity, sea level rise, and power outages), particularly in certain regions in which we operate or own buildings, such as Santa Clara, California, and where our third-party manufacturing partners or suppliers operate, such as Taiwan and elsewhere in the Pacific Rim;

• risks related to our Environmental, Social and Governance (ESG) programs;

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We undertake no obligation to update any forward-looking statements.

We are a leading supplier of infrastructure semiconductor solutions, spanning the data center core to network edge.

We are a leading supplier of data infrastructure semiconductor solutions, spanning the data center core to network edge.

We are a fabless semiconductor supplier of high-performance standard and semi-custom products with core strengths in developing and scaling complex System-on-a-Chip architectures, integrating analog, mixed-signal and digital signal processing functionality.

Leveraging leading intellectual property and deep system-level expertise, as well as highly innovative security firmware, our solutions are empowering the data economy and enabling the data center, enterprise networking, carrier infrastructure, consumer, and automotive/industrial end markets.

Net revenue in the third quarter of fiscal 2023 was $1.5 billion and was 27% higher than net revenue of $1.2 billion in the third quarter of fiscal 2022.

This was due to an increase in sales from a majority of our end markets.

Revenue increased from the data center end market by 26%, from the enterprise networking end market by 52%, from the carrier infrastructure end market by 26%, and from the automotive/industrial end market by 26% compared to the three months ended October 30, 2021.

The sales from the consumer end market were relatively flat for the three months ended October 29, 2022 compared to the three months ended October 30, 2021.

Over the last several quarters, in response to an increase in demand from our customers for our products as they continued to invest in data infrastructure, our operations team has continued to ramp production with our global supply chain partners.

With the start of a broad inventory correction in the semiconductor industry, we expect supply constraints will start to moderate.

During the third quarter of fiscal 2023, in response to a changing demand environment, customers started requesting to push out shipments and reschedule orders to manage their inventory.

We saw the largest impact from our storage customers.

In addition, demand for our products has come down significantly from our OEM customers in China, as they deal with a changing macroeconomic situation.

To secure capacity over the long term, we have entered into and continue to enter into capacity reservation arrangements with certain foundries and partners for substrates.

Net revenue in the first quarter of fiscal 2024 was $1.3 billion and was 9% lower than net revenue of $1.4 billion in the first quarter of fiscal 2023.

This was due to a decrease in sales to the data center end market by 32% and a decrease in sales to the consumer end market by 20%.

These decreases were partially offset by an increase in sales to the enterprise networking end market by 27% and an increase in sales to the carrier infrastructure end market by 15%.

The sales to the automotive/industrial end market were relatively flat for the three months ended April 29, 2023 compared to the three months ended April 30, 2022.

During the second half of fiscal 2023, in response to a softening demand environment, customers started requesting to push out shipments and reschedule orders to manage their inventory.

We have seen these inventory corrections continue to impact our storage customers, as well as enterprise networking and our wired carrier customers.

In addition, we have continued to see low demand from our OEM customers in China.

During the first quarter of fiscal 2024, we have seen a strong increase in demand for our optical products, driven by AI applications.

To secure capacity over the long term, we have entered into and expect to continue to enter into capacity reservation arrangements with certain foundries and partners for substrates.

See “Note 4 – Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

We continue to monitor the impact of COVID-19 on our business.

We adopted a hybrid work policy where most employees have the option to split their time between home and the office.

We expect COVID-19 to continue to impact our business, for a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see Part II, Item 1A, “Risk Factors,” including but not limited to the risk detailed under the caption “ We face risks related to the COVID-19 pandemic which currently has, and may continue in the future to, significantly disrupt and adversely impact our manufacturing, research and development, operations, sales and financial results .”

We expect that the U.S.

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In addition, there may be indirect impacts to our business that we cannot easily quantify such as the fact that some of our other customers’ products which use our solutions may also be impacted by export restrictions.

See also Part II, Item IA, “Risk Factors,” including, but not limited to, the risk detailed under the caption “ Adverse changes in the political and economic policies of the U.S.

government in connection with trade with China and Chinese customers have reduced the demand for our products and damaged our business.

Restructuring .

During the quarter ended April 29, 2023, we initiated a restructuring plan and incurred $59.9 million restructuring related charges to streamline our organization and optimize resources.

See “Note 7 - Restructuring” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Capital Return Program.

We remain committed to delivering stockholder value through our stock repurchase and dividend programs.

Under the program authorized by our Board of Directors, we may repurchase our stock in the open-market or through privately negotiated transactions.

Under the program authorized by our Board of Directors, we may repurchase shares of our common stock in the open-market or through privately negotiated transactions.

The extent to which we repurchase our stock and the timing of such repurchases will depend upon market conditions, legal rules and regulations, and other corporate considerations, as determined by our management team.

We resumed our stock repurchase program in the first quarter of fiscal 2023, which had been temporarily suspended in fiscal 2021 to preserve cash during the COVID-19 pandemic.

During the nine months ended October 29, 2022, we repurchased 2.3 million shares of our common stock for $115.0 million, including 0.9 million shares of our common stock repurchased for $50.0 million pursuant to a 10b5-1 trading plan during the second quarter of fiscal 2023.

As of October 29, 2022, $449.5 million remained available for future stock repurchases.

As of October 29, 2022, a total of 310.4 million shares have been repurchased to date under our current and previous stock repurchase programs for an aggregate total of $4.4 billion in cash.

We returned $268.1 million to stockholders in the nine months ended October 29, 2022, including our repurchases of common stock and $153.1 million in cas h dividends.

During the three months ended April 29, 2023, we did not repurchase shares of our common stock.

As of April 29, 2023, $449.5 million remained available for future stock repurchases.

As of April 29, 2023, a total of 310.4 million shares have been repurchased since inception of our current and previous stock repurchase programs for an aggregate total of $4.4 billion in cash.

We returned $51.4 million to stockholders in the three months ended April 29, 2023 in cas h dividends.

Cash and Short-Term Investments.

Our cash and cash equivalents were $723.4 million at October 29, 2022, which was $109.9 million higher than our balance at our fiscal year ended January 29, 2022 of $613.5 million.

Our cash and cash equivalents were $1.0 billion at April 29, 2023, which were $117.3 million higher than our balance at our fiscal year ended January 28, 2023 of $911.0 million.

Sales and Customer Composition.

Our accounts receivable was concentrated with four customers at October 29, 2022, who comprised a total of 56% of gross accounts receivable, compared with seven customers at October 30, 2021, who represented 51% of gross accounts receivable.

This presentation is at the customer consolidated level.

During the three and nine months ended October 29, 2022 and October 30, 2021, there was no net revenue attributable to a single customer, other than one distributor, whose revenue as a percentage of net revenue was 10% or greater of total net revenue.

Net revenue attributable to a distributor whose revenue as a percentage of net revenue was 10% or greater of total net revenue is presented in the following table:

Three Months Ended Nine Months Ended

2022 October 30,

2021 October 29,

2022 October 30,

Our accounts receivable was concentrated with four customers at April 29, 2023, who represented a total of 55% of gross accounts receivable, compared with four customers at April 30, 2022, who represented 52% of gross accounts receivable.

During the three months ended April 29, 2023, there was one customer, in addition to two distributors, whose revenue as a percentage of net revenue was 10% or greater of total net revenue.

During the three months ended April 30, 2022, there was no net revenue attributable to a customer, other than one distributor, whose revenue as a percentage of net revenue was 10% or greater of total net revenue.

Net revenue attributable to significant customers whose revenue as a percentage of net revenue was 10% or greater of total net revenue is presented in the following table:

Three Months Ended

2023 April 30,

Customer A 15% *

Distributor A 16% 19%

We continuously monitor the creditworthiness of our customers and distributors and believe these distributors’ sales to diverse end customers and geographies further serve to mitigate our exposure to credit risk.

Most of our sales are made to customers located outside of the United States, primarily in Asia, and majority of our products are manufactured outside the United States.

Sales shipped to customers with operations in Asia represented approximately 75% and 76% of our net revenue in the three and nine months ended October 29, 2022, respectively, and approximately 79% of net revenue in the three and nine months ended October 30, 2021.

Distributor B 11% *

*Less than 10% of net revenue.

We continue to monitor the creditworthiness of our customers and distributors and believe these distributors’ sales to diverse end customers and geographies further serve to mitigate our exposure to credit risk.

Most of our sales are made to customers with operations located outside of the United States, primarily in Asia, and majority of our products are manufactured outside the United States.

Sales shipped to customers with operations in Asia represented approximately 69% of our net revenue in the three months ended April 29, 2023, and approximately 75% of net revenue in the three months ended April 30, 2022.

Because many manufacturers and manufacturing subcontractors of our customers are located in Asia, we expect that most of our net revenue will continue to be represented by sales to our customers in that region.

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If we are unable to accurately predict customer demand, we may hold excess or obsolete inventory, which would reduce our gross margin.

Conversely, we may have insufficient inventory, which would result in lost revenue opportunities and potential loss of market share as well as damaged customer relationships.”

Conversely, we may have insufficient inventory or be unable to obtain the supplies or contract manufacturing capacity to meet that demand, which would result in lost revenue opportunities and potential loss of market share as well as damaged customer relationships.”

Critical Accounting Policies and Estimates

There have been no material changes during the three months ended October 29, 2022 to our critical accounting policies and estimates from the information provided in the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022.

There have been no material changes during the three months ended April 29, 2023 to our critical accounting policies and estimates from the information provided in the “Critical Accounting Policies and Estimates” section of Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

In the current macroeconomic environment, our estimates could require increased judgment and carry a higher degree of variability and volatility.

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The following table sets forth information derived from our Unaudited Condensed Consolidated Statements of Operations expressed as a percentage of net revenue:

Three Months Ended Nine Months Ended

2022 October 30,

2021 October 29,

2022 October 30,

Three Months Ended

2023 April 30,

Net revenue 100.0 % 100.0 %

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Selling, general and administrative 15.1 16.3

Legal settlement — — 2.2 —

Restructuring related charges 4.5 0.1

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Provision (benefit) for income taxes (4.8) 14.2

Net income (loss) 1.0 % (5.2) % (3.2) % (13.7) %

Three and Nine Months Ended October 29, 2022 and October 30, 2021

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

Net loss (12.8) % (11.5) %

Three Months Ended April 29, 2023 and April 30, 2022

Three Months Ended

2023 April 30,

(in millions, except percentage)

Net revenue $ 1,321.7 $ 1,446.9 (8.7)%

Our net revenue for the three months ended October 29, 2022 increased by $326.1 million compared to net revenue for the three months ended October 30, 2021.

This was due to an increase in sales from a majority of our end markets.

The sales from the consumer end market were relatively flat for the three months ended October 29, 2022 compared to the three months ended October 30, 2021.

Our net revenue for the nine months ended October 29, 2022 increased by $1.4 billion compared to net revenue for the nine months ended October 30, 2021.

This was due to an increase in sales from all our end markets.

Revenue increased from the data center end market by 58%, from the enterprise networking end market by 56%, from the carrier infrastructure end market by 40%, from the consumer end market by 1%, and from the automotive/industrial end market by 51% compared to the nine months ended October 30, 2021.

The ove rall increases in net revenue of 27% and 44% for the three and nine months ended October 29, 2022, respectively, were primarily driven by relatively higher sales of products with higher average selling prices associated with higher content and more features.

In addition, the overall increase in net revenue for the nine months ended October 29, 2022 was also driven by an increase in demand for our products and the year-over-year impact of acquisitions made in fiscal 2022, with both factors contributing to higher unit shipments.

Our net revenue for the three months ended April 29, 2023 decreased by $125.2 million compared to net revenue for the three months ended April 30, 2022.

This was due to a decrease in sales to the data center end market by 32% and a decrease in sales to the consumer end market by 20%.

The decreases were partially offset by an increase in sales to the enterprise networking end market by 27% and an increase in sales to the carrier infrastructure end market by 15%.

The sales to the automotive/industrial end market were relatively flat for the three months ended April 29, 2023 compared to the three months ended April 30, 2022.

The ove rall decreases in net revenue of 8.7% for the three months ended April 29, 2023 compared to three months ended April 30, 2022, were primarily driven by lower unit shipments related to storage products.

Cost of Goods Sold and Gross Profit

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

Three Months Ended

2023 April 30,

(in millions, except percentage)

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% of net revenue 42.2 % 51.9 %

Cost of goods sold as a percentage of net revenue decreased for the three and nine months ended October 29, 2022 compared to the three and nine months ended October 30, 2021, which is primarily due to lower amortization of inventory fair value adjustment and acquired intangible assets as a percentage of net revenue.

As a result, gross margin for the three and nine months ended October 29, 2022 increased 2.1 and 7.2 percentage points compared to the three and nine months ended October 30, 2021.

Cost of goods sold as a percentage of net revenue increased for the three months ended April 29, 2023 compared to the three months ended April 30, 2022, which is primarily due to a shift in product mix and increased inventory reserves.

As a result, gross margin for the three months ended April 29, 2023 decreased by 9.7 percentage points compared to the three months ended April 30, 2022.

Research and Development

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

Three Months Ended

2023 April 30,

(in millions, except percentage)

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% of net revenue 36.4 % 30.7 %

Research and development expense increased by $76.2 million in the three months ended October 29, 2022 compared to the three months ended October 30, 2021.

The increase was primarily due to $48.9 million of higher employee personnel-related costs as a result of headcount increases including new employees from our recent acquisitions.

Research and development expense increased by $316.2 million in the nine months ended October 29, 2022 compared to the nine months ended October 30, 2021.

The increase was primarily due to $250.8 million of higher employee personnel-related costs as a result of headcount increases including new employees from our recent acquisitions.

Research and development expense increased by $36.6 million in the three months ended April 29, 2023 compared to the three months ended April 30, 2022.

The increase was primarily due to $28.9 million of higher employee personnel-related costs.

Selling, General and Administrative

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

Three Months Ended

2023 April 30,

(in millions, except percentage)

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% of net revenue 15.1 % 16.3 %

Selling, general and administrative expense decreased by $35.6 million in the three months ended October 29, 2022 compared to the three months ended October 30, 2021.

The decrease was primarily due to $21.7 million of lower intangibles amortization expense related to intangibles that were fully amortized during the first quarter of fiscal 2023 and $20.4 million of lower integration costs associated with our acquisition of Inphi and Innovium in fiscal 2022.

The decrease was partially offset by $6.7 million of higher employee personnel-related costs as a result of headcount increases including new employees from our recent acquisitions.

Selling, general and administrative expense decreased by $63.9 million in the nine months ended October 29, 2022 compared to the nine months ended October 30, 2021.

The decrease was primarily due to $85.9 million of lower transaction and integration costs associated with our acquisition of Inphi and Innovium and $28.4 million of lower stock based compensation expense mainly related to accelerated vesting of Inphi and Innovium equity awards incurred due to the deal closing in the prior year.

The decrease was partially offset by $20.5 million of higher employee personnel-related costs and $20.0 million of higher intangibles amortization expense associated with our acquisitions of Inphi and Innovium in fiscal 2022, as well as acquisitions in the current period.

Legal Settlement

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

(in millions, except percentage)

Legal settlement $ — $ — * $ 100.0 $ — *

% of net revenue — % — % 2.2 % — %

*Not meaningful

We recorded a charge of $100.0 million in the nine months ended October 29, 2022 related to the settlement of a contractual dispute.

Refer to “Note 5 – Commitments and Contingencies” for further information.

Selling, general and administrative expense decreased by $36.7 million in the three months ended April 29, 2023 compared to the three months ended April 30, 2022.

The decrease was primarily due to a $15.0 million charge in the three months ended April 30, 2022 related to a contractual dispute, which did not repeat in the three months ended April 29, 2023, $11.7 million of lower intangibles amortization expense related to intangibles that were fully amortized during the first quarter of fiscal 2023 and $9.5 million of lower integration costs associated with our prior acquisitions.

Restructuring Related Charges

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

Three Months Ended

2023 April 30,

(in millions, except percentage)

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% of net revenue 4.5 % 0.1 %

We recognized $15.6 million and $18.1 million of total restructuring related charges in the three and nine months ended October 29, 2022, respectively, as we continued to evaluate our existing operations to increase operational efficiency, decrease costs, and increase profitability.

We recognized $59.9 million of total restructuring related charges in the three months ended April 29, 2023 as a result of our restructuring plan to streamline our organization and optimize resources.

See “Note 7 – Restructuring” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Interest Income

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

Three Months Ended

2023 April 30,

(in millions, except percentage)

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% of net revenue 0.2 % — %

Interest income increased by $1.3 million and $2.2 million in the three and nine m onths ended October 29, 2022, respectively, compared to the three and nine months ended October 30, 2021 due to higher interest rates on our invested cash.

Interest income increased by $2.0 million in the three m onths ended April 29, 2023 compared to the three months ended April 30, 2022 due to higher interest rates on our invested cash.

Interest Expense

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

Three Months Ended

2023 April 30,

(in millions, except percentage)

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% of net revenue (4.0) % (2.5) %

Interest expense increased by $9.8 million and $17.0 million in the three and nine months ended October 29, 2022, respectively, compared to the three and nine months ended October 30, 2021.

The increase was primarily due to higher interest expense and amortization of debt issuance costs associated with the 2024 and 2026 Term Loans and 2026, 2028 and 2031 Senior Notes, partially offset by prior period costs associated with the bridge loan termination.

Interest expense increased by $16.4 million in the three months ended April 29, 2023 compared to the three months ended April 30, 2022.

The increase was primarily due to higher interest expense associated with the 2024 and 2026 Term Loans.

Other Income, Net

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

Three Months Ended

2023 April 30,

(in millions, except percentage)

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% of net revenue — % 0.4 %

Other income, net, increased by $2.2 million and $11.6 million in the three months and nine months ended October 29, 2022, respectively, compared to the three and nine months ended October 30, 2021.

The increase was primarily due to gain from equity investments and exchange rate fluctuations.

Other income, net, decreased by $4.9 million in the three months ended April 29, 2023 compared to the three months ended April 30, 2022.

The higher income in the three months ended April 30, 2022 was primarily due to a gain recognized from an equity investment in a privately-held company.

Provision (Benefit) for Income Taxes

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

Three Months Ended

2023 April 30,

(in millions, except percentage)

Provision (benefit) for income taxes $ (63.4) $ 204.9 (130.9)%

Our income tax expense for the three months ended October 29, 2022 was $52.0 million compared to a tax benefit of $5.0 million for the three months ended October 30, 2021.

Our income tax expense $52.0 million for the three months ended October 29, 2022 differed from the 21% federal income tax rate, primarily due to a discrete income tax expense related to the Israel clawback tax on prior earnings.

Our income tax benefit for the three months ended October 30, 2021 differed from the U.S.

federal tax rate of 21% primarily because of discrete income tax benefits for stock-based compensation, tax rate differentials on foreign income (losses), and recognition of tax benefits related to the settlement of audits in certain jurisdictions.

Our income tax expense for the nine months ended October 29, 2022, was $256.4 million compared to a tax benefit of $58.4 million for the nine months ended October 30, 2021.

Our income tax expense of $256.4 million for the nine months ended October 29, 2022, differed from the federal statutory tax rate of 21% primarily due to the $213.6 million tax impact of the remeasurement of deferred taxes in Singapore and $22.4 million tax impact of the Israel clawback taxes on prior earnings, offset by the recognition of discrete tax benefits related to stock-based compensation.

Our income tax benefit of $58.4 million for the nine months ended October 30, 2021, differed from the 21% federal statutory tax rate primarily because of the recognition of a $10.0 million tax benefit attributable to Singapore tax basis in intellectual property, tax benefits related to stock-based compensation, and benefits from expirations of the statutes of limitations related to certain previously unrecognized tax benefits that were recorded in prior periods.

Our income tax benefit for the three months ended April 29, 2023 was $63.4 million compared to a tax expense of $204.9 million for the three months ended April 30, 2022.

Our income tax benefit of $63.4 million for the three months ended April 29, 2023 differed from the 21% federal income tax rate, primarily due to a substantial portion of earnings or losses being taxed or benefited at rates lower than the U.S.

statutory rate, net of the impact of U.S.

taxation of foreign operations, benefits from tax credits, valuation allowance releases, and discrete tax benefits and expenses for excess deductions and deficiencies on stock-based compensation, respectively.

Our income tax expense for the three months ended April 30, 2022 differed from the U.S.

federal tax rate of 21% primarily because of the remeasurement of our deferred taxes in Singapore upon the five year extension of our DEI status until June 30, 2029 at the new incentive tax rates that are expected to apply during these future periods for existing deferred tax items, resulting in a net reduction to our Singapore deferred tax assets of $213.6 million and a corresponding income tax expense.

In addition, our tax rate for the three months ended April 30, 2022 was affected by the recognition of benefits for tax credits, discrete tax benefits from stock-based compensation deductions and the tax rate differential on foreign income.

Our provision for incomes taxes may be affected by changes in the geographic mix of earnings with different applicable tax rates, acquisitions, changes in the realizability of deferred tax assets, accruals related to contingent tax liabilities and period-to-period changes in such accruals, the results of income tax audits, the expiration of statutes of limitations, the implementation of tax planning strategies, tax rulings, court decisions, settlements with tax authorities and changes in tax laws and regulations.

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In future periods, it is possible that significant positive or negative evidence could arise that results in a change in our judgment with respect to the need for a valuation allowance, which could result in a tax benefit, or adversely affect our income tax provision, in the period of such change in judgment.

We also continuously evaluate potential changes to our legal structure in response to guidelines and requirements in various international tax jurisdictions where we conduct business.

Additionally, please see the information in “Item 1A:

Risk Factors” under the caption “ Changes in existing taxation benefits, tax rules or tax practices may adversely affect our financial results .”

We also continue to evaluate potential changes to our legal structure in response to guidelines and requirements in various international tax jurisdictions where we conduct business.

Additionally, please see the information in Part II Item 1A – Risk Factors” under the caption “Changes in existing taxation benefits, tax rules or tax practices may adversely affect our financial results.”

Liquidity and Capital Resources

Our principal source of liquidity as of October 29, 2022 consisted of approximately $723.4 million of cash and cash equivalents, of which approximately $500.8 million was held by subsidiaries outside of the United States.

Our principal source of liquidity as of April 29, 2023 consisted of approximately $1.0 billion of cash and cash equivalents, of which approximately $592.3 million was held by subsidiaries outside of the United States.

We manage our worldwide cash requirements by, among other things, reviewing available funds held by our foreign subsidiaries and the cost effectiveness by which those funds can be accessed in the United States.

See “Note 8 – Income Taxes” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

In December 2020, to fund the Inphi acquisition, we executed a debt agreement to obtain a 3-year term loan of $875.0 million and a 5-year term loan of $875.0 million.

For the nine months ended October 29, 2022, we repaid $43.7 million of the principal outstanding on the 5-year term loan.

In December 2020, we also executed a debt agreement to obtain a $750.0 million revolving credit facility (the “2020 Revolving Credit Facility”).

During the third quarter of fiscal 2023, we repaid $70.0 million of the aggregate principal amount of borrowings that remained outstanding, and as at October 29, 2022, there was no amount outstanding under the 2020 Revolving Credit Facility.

In April 2021, we completed an offering and issued (i) 5-year $500.0 million senior notes due in 2026, (ii) 7-year $750.0 million senior notes due in 2028, and (iii) 10-year $750.0 million senior notes due in 2031 (collectively, the “Senior Notes”).

On October 8, 2021, the Senior Notes issued in April 2021 were exchanged for new notes.

In December 2020, to fund the Inphi acquisition, we executed the 2024 and 2026 Term Loan Agreement to obtain the 2024 and 2026 Term Loans.

On April 14, 2023, we entered into an amendment to the 2024 and 2026 Term Loan Agreement.

The amendment modifies the existing agreement to, among other things, adopt SOFR interest rates and conform the maximum leverage ratio financial covenant with the amended and restated revolving credit agreement.

For the quarter ended April 29, 2023, we repaid $21.9 million of the principal outstanding of the 2026 Term Loan.

As of April 29, 2023, we had $735.0 million borrowings outstanding under the 2024 Term Loan and $765.6 million borrowings outstanding under the 2026 Term Loan.

In December 2020, we also executed a debt agreement to obtain a $750.0 million revolving credit facility.

On April 14, 2023, we entered into an agreement to amend and restate the credit facility to increase the borrowing capacity to $1.0 billion (as so amended and restated, the “2023 Revolving Credit Facility”).

The 2023 Revolving Credit Facility has a 5-year term and a stated floating interest rate which equates to an adjusted term SOFR plus an applicable margin.

During the first quarter of fiscal 2024, we drew down $200.0 million on the 2023 Revolving Credit facility that remained outstanding as at April 29, 2023.

As of April 29, 2023, we had $2.0 billion aggregate principal amount of the Senior Notes outstanding and $1.0 billion aggregate principal amount of the MTG/MTI Senior Notes outstanding.

The notes are registered under the Securities Act.

See “Note 3 – Debt” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

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Cash Flows from Operating Activities

Net cash flow provided by operating activities for the nine months ended October 29, 2022 was $937.3 million.

Net cash provided by operating activities for the three months ended April 29, 2023 was $208.4 million.

We had a net loss of $168.9 million adjusted for the following non-cash items:

amortization of acquired intangible assets of $814.2 million, stock-based compensation expense of $421.7 million, depreciation and amortization of $227.0 million, deferred income tax expense of $53.6 million, amortization of inventory fair value adjustment associated with the Innovium acquisition of $26.0 million, and $58.5 million net loss from other non-cash items.

Cash outflow from working capital of $515.6 million for the nine months ended October 29, 2022 was primarily driven by increases in accounts receivable, inventory, and prepaid expenses and other assets and a decrease in accounts payable, partially offset by increases in accrued liabilities and other non-current liabilities and accrued employee compensation.

The increase in accounts receivable was primarily due to increased sales, as well as the timing of shipments due to ongoing supply chain challenges.

The increase in inventory was to better support unfulfilled backlog, future customer demand and new product ramps.

The increase in prepaid expenses and other assets was primarily due to prepayments on supply capacity reservation agreements.

amortization of acquired intangible assets of $270.0 million, stock-based compensation expense of $143.2 million, deferred income tax benefit of $139.1 million, depreciation and amortization of $78.4 million, restructuring related impairment charges of $10.1 million, and $12.8 million of net loss from other non-cash items.

Cash inflow from working capital of $1.9 million for the three months ended April 29, 2023 was primarily driven by decreases in accounts receivable, inventory, and prepaid expenses and other assets, partially offset by decreases in accounts payable, accrued liabilities and other non-current liabilities and accrued employee compensation.

The decrease in accounts receivable was primarily due to timing of shipments and a reduction of revenue due to higher customer inventories.

The decrease in inventory was primarily a result of managing the supply chain in a slower demand environment.

The decrease in prepaid expenses and other assets was primarily driven by a decrease in prepaid ship and debits due to lower inventory balance at distributors resulting from lower shipments to and higher sales at distributors, partially offset by prepayments on supply capacity reservation agreements.

The decrease in accounts payable was primarily due to the timing of payments.

The increase in accrued liabilities and other non-current liabilities was primarily due to an accrual related to a settlement of a contractual dispute and an increase in the ship and debit claim reserve due to price increases and stock replenishment.

The increase in accrued employee compensation was due to increases in our bonus accrual and in employee contributions to the employee stock purchase plan.

Net cash flow provided by operating activities for the nine months ended October 30, 2021 was $473.1 million.

The decrease in accrued liabilities and other non-current liabilities was primarily driven by lower ship and debit claims accrual due to lower inventory balance at distributors resulting from lower shipments to and higher sales at distributors, partially offset by increases in restructuring accruals and income tax payable.

The decrease in accrued employee compensation was due to bonus payout.

Net cash provided by operating activities for the three months ended April 30, 2022 was $194.8 million.

We had a net loss of $165.7 million adjusted for the following non-cash items:

amortization of acquired intangible assets of $684.6 million, stock-based compensation expense of $325.9 million, amortization of inventory fair value adjustment associated with the Inphi and Innovium acquisitions of $191.1 million, depreciation and amortization of $189.6 million, deferred income tax benefit of $67.6 million, and $84.4 million net loss from other non-cash items.

Cash outflow from working capital of $507.7 million for the nine months ended October 30, 2021 was primarily driven by increases in accounts receivable, inventory, and prepaid expenses and other assets, partially offset by an increase in accounts payable.

The increase in accounts receivable was primarily due to increased sales as well as the timing of shipments due to ongoing supply chain challenges.

The increase in inventory was due to increased procurement to support our future growth.

amortization of acquired intangible assets of $272.5 million, deferred income tax expense of $165.0 million, stock-based compensation expense of $131.1 million, depreciation and amortization of $75.7 million, amortization of inventory fair value adjustment associated with the acquisition of Innovium, Inc.

of $9.3 million, restructuring related impairment charges of $0.9 million, and $5.8 million net loss from other non-cash items.

Cash outflow from working capital of $299.8 million for the three months ended April 30, 2022 was primarily driven by increases in accounts receivable, inventory, and prepaid expenses and other assets, and decrease in accrued employee compensation, partially offset by increases in accounts payable, and accrued liabilities and other non-current liabilities.

The increase in accounts receivable was driven primarily by higher revenue and uniform collections.

The increase in inventory was to support future customer demand.

The increase in prepaid expenses and other assets was primarily due to prepayments on supply capacity reservation agreements.

The higher accounts payable was due to an increase in purchases and the timing of payments.

The decrease in accrued employee compensation was due to bonus payout.

The increase in accounts payable was mainly due to timing of payments.

The increase in accrued liabilities and other non-current liabilities is mainly due to an increase in ship and debit claim reserve due to price increase and stock replenishment.

Cash Flows from Investing Activities

For the nine months ended October 29, 2022, net cash used in investing activities of $264.2 million was primarily driven by purchases of property and equipment of $152.2 million, net cash paid for business acquisitions of $103.0 million, and purchases of technology licenses of $9.1 million.

For the nine months ended October 30, 2021, net cash used in investing activities of $3.7 billion was primarily driven by the net cash paid to acquire Inphi of $3.6 billion, purchases of property and equipment of $130.4 million and purchases of technology licenses of $9.3 million, partially offset by cash acquired from Innovium of $60.4 million.

For the three months ended April 29, 2023, net cash used in investing activities of $102.7 million was primarily driven by purchases of property and equipment of $99.8 million, and purchases of technology licenses of $2.8 million.

For the three months ended April 30, 2022, net cash used in investing activities of $82.4 million was primarily driven by net cash paid for business acquisitions of $44.0 million, purchases of property and equipment of $36.9 million, and purchases of technology licenses of $1.6 million.

Cash Flows from Financing Activities

For the nine months ended October 29, 2022, net cash used in financing activities of $563.2 million was primarily attributable to $243.8 million for repayment of debt, $201.2 million for tax withholding payments on behalf of employees for net share settlements, $153.1 million for the payment of our quarterly dividends, $115.0 million for repurchases of common stock and $103.6 million for payments for technology license obligations, partially offset by a $200.0 million drawdown from our 2020 Revolving Credit Facility and $52.5 million in proceeds from our employee stock plans.

For the nine months ended October 30, 2021, net cash provided by financing activities of $3.0 billion was primarily attributable to proceeds from the issuance of debt of $3.8 billion, proceeds from capped calls of $160.3 million, partially offset by $425.9 million for repayment of debt, $181.2 million for the repurchase and settlement of convertible notes, $169.1 million for tax withholding payments on behalf of employees for net share settlements, $140.3 million for the payment of our quarterly dividends and $97.9 million for payments for technology license obligations.

For the three months ended April 29, 2023, net cash provided by financing activities of $11.6 million was primarily attributable to $200.0 million drawdown from our 2023 Revolving Credit Facility and $7.5 million in proceeds from our employee stock plans, partially offset by $72.6 million for tax withholding payments on behalf of employees for net share settlements, $51.4 million for payment of our quarterly dividends, $50.0 million payments on technology license obligations, and $21.9 million repayment of debt.

For the three months ended April 30, 2022, net cash used in financing activities of $260.9 million was primarily attributable to $137.6 million tax withholding payments on behalf of employees for net share settlements, $50.9 million for payment of our quarterly dividends, $49.0 million payments on technology license obligations, $15.0 million of repurchases of common stock, and $10.9 million repayment of debt, partially offset by $2.5 million proceeds from employee stock plans.

Capital Resources and Material Cash Requirements

A summary of our capital resources and material cash requirements is presented in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022.

A summary of our capital resources and material cash requirements is presented in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023.

We also discuss updates of our significant commitments in “Note 4 – Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements.

Other than as described above, there were no material changes to our capital resources and material cash requirements during the nine months ended October 29, 2022.

Other than as described above, there were no material changes to our capital resources and material cash requirements during the three months ended April 29, 2023.

Indemnification Obligations

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What changed 10-Q

Item 2. Management’s Discussion and Analysis