What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-13 compared with 2023-03-09 · 120 added, 123 removed, 249 unchanged (49% of the section changed)

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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 fiscal 2023 was $5.9 billion and was 33% higher than net revenue of $4.5 billion in fiscal 2022.

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

Sales increased from the data center end market by 35%, from the enterprise networking end market by 51%, from the carrier infrastructure end market by 32%, and from the automotive/industrial end market by 43% co mpared to fiscal 2022.

The sales from our consumer end market were relatively flat for fiscal 2023 compared to fiscal 2022.

Starting in fiscal 2022 and through the first half of fiscal 2023, in response to a large increase in demand from our customers for our products in a majority of our end markets as they continued to invest in data infrastructure, our operations team continued to increase production with our global supply chain partners to alleviate supply constraints.

However, with the start of a broad inventory correction in the semiconductor industry, supply constraints have now mostly resolved.

Our fiscal year is the 52- or 53-week period ending on the Saturday closest to January 31.

Accordingly, every fifth or sixth fiscal year will have a 53-week period.

The additional week in a 53-week year is added to the fourth quarter, making such quarter consist of 14 weeks.

Fiscal 2024 had a 53-week period.

Fiscal 2023 and fiscal 2022 each had a 52-week period.

Net revenue in fiscal 2024 was $5.5 billion and was 7.0% lower than net revenue of $5.9 billion in fiscal 2023.

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

Sales decreased from the data center end market by 8%, from the enterprise networking end market by 10%, from the consumer end market by 11%, and from the carrier infrastructure end market by 3%.

The decreases were partially offset by an increase in sales from the automotive/industrial end market by 9% compared to fiscal 2023.

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.

In the fourth quarter, 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.

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.

Starting in 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 6 – Commitments and Contingencies” in the Notes to the Consolidated Financial Statements for additional information.

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

As part of our response to the effects of COVID-19, we adopted a hybrid work policy where most of our employees have the option to split their time between working from home and the office.

We continue to expect lingering impacts with respect to COVID-19 on our business, for a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see Part I, 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.

See “Note 6 – Commitments and Contingencies” in the Notes to Consolidated Financial Statements for additional information.

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 I, 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.

Our fiscal year is the 52- or 53-week period ending on the Saturday closest to January 31.

Accordingly, every fifth or sixth fiscal year will have a 53-week period.

The additional week in a 53-week year is added to the fourth quarter, making such quarter consist of 14 weeks.

Fiscal 2023, fiscal 2022 and fiscal 2021 each had a 52-week period.

See also Part I, Item IA, “Risk Factors,” including, but not limited to, the risk detailed under the caption “ Adverse changes in the political, regulatory and economic policies of governments in connection with trade with China and Chinese customers have reduced the demand for our products and damaged our business.

Restructuring .

In the first quarter of fiscal 2024, we initiated a restructuring plan to streamline our organization and optimize resources.

The restructuring and other related charges recorded were $131.1 million for the year ended February 3, 2024.

See “Note 10 - Restructuring” in the Notes to Consolidated Financial Statements for further information.

Capital Return Program.

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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 our fiscal year ended January 28, 2023, 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 January 28, 2023, $449.5 million remained available under our stock repurchase program for future stock repurchases.

See “Note 11 – Stockholders’ Equity” in the Notes to the Consolidated Financial Statements for further information.

As of January 28, 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.

During the year ended February 3, 2024, we repurchased 2.5 million shares of our common stock for $150.0 million, including 0.8 million shares of our common stock repurchased for $50.0 million pursuant to a 10b5-1 trading plan.

As of February 3, 2024, $299.5 million remained available for future stock repurchases.

Subsequent to fiscal year end, in March 2024, our Board of Directors increased the repurchase program mentioned above and authorized an additional $3.0 billion to that repurchase program.

See “Note 11 – Stockholders’ Equity” in the Notes to Consolidated Financial Statements for further information.

As of February 3, 2024, a total of 312.9 million shares have been repurchased since inception of our current and previous stock repurchase programs for an aggregate total of $4.5 billion in cash.

We returned $356.8 million to stockholders in fiscal 2024 through $150.0 million in repurchases of shares of common stock and $206.8 million in cash dividends.

Cash and Short-Term Investments.

Our cash and cash equivalents were $911.0 million at January 28, 2023, which were $297.5 million higher than our balance at our fiscal year ended January 29, 2022 of $613.5 million .

Our cash and cash equivalents were $950.8 million at February 3, 2024, which were $39.8 million higher than our balance at January 28, 2023 of $911.0 million.

Sales and Customer Composition.

We regularly 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.

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

Sales shipped to customers with operations in Asia represented approximately 70% of our net revenue in fiscal 2024, 75% of our net revenue in fiscal 2023 and 78% of our net revenue in fiscal 2022.

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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, 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.”

Conversely, we may have insufficient inventory or be unable to obtain the supplies or contract manufacturing capacity to meet 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

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, income taxes, goodwill and other intangible assets, and business combinations.

On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, provisions for sales returns and allowances, inventory excess and obsolescence, goodwill and other intangible assets, business combinations, restructuring, income taxes, litigation, and other contingencies.

We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances when these carrying values are not readily available from other sources.

Actual results could differ from these estimates, and such differences could affect the results of operations reported in future periods.

In the macroeconomic environment affected by COVID-19, our estimates could require increased judgment and carry a higher degree of variability and volatility.

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

We continue to monitor and assess our estimates in light of developments, and as events continue to evolve and additional information becomes available, our estimates may change materially in future periods.

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Actual variable consideration could differ from these estimates.

A portion of our net revenue is derived from sales through third-party logistics providers who maintain warehouses in close proximity to our customer’s facilities.

A portion of our net revenue is derived from sales through third-party logistics providers who maintain warehouses in close proximity to our customers’ facilities.

Revenue from sales through these third-party logistics providers is not recognized until the product is pulled from stock by the customer.

Our products are generally subject to warranty, which provides for the estimated future costs of replacement upon shipment of the product.

Our products carry a standard one-year warranty, with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements.

We generally warrant that our products sold to our customers will conform to our approved specifications and be free from defects in material and workmanship under normal use and conditions for one year.

We may offer a longer warranty period in limited situations based on product type and negotiated warranty terms with certain customers.

The warranty accrual is estimated primarily based on historical claims compared to historical revenues and assumes that we will have to replace products subject to a claim.

From time to time, we become aware of specific warranty situations, and we record specific accruals to cover these exposures.

Warranty expenses were not material for the periods presented.

Inventories .

We value our inventory at the lower of cost or net realizable value, cost being determined under the first-in, first-out method.

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We estimate our income taxes in each of the jurisdictions in which we operate.

This process involves estimating our actual tax exposure together with assessing temporary differences resulting from the differing treatment of certain items for tax return and financial statement purposes.

This process involves estimating our actual tax expense together with assessing temporary differences resulting from the differing treatment of certain items for tax return and financial statement purposes.

These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets.

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The measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated.

Evaluating the need for a valuation allowance for deferred tax assets requires judgment and analysis of all the positive and negative evidence available, including recent earnings history and cumulative losses in recent years, reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies to determine whether all or some portion of the deferred tax assets will not be realized.

Forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years, and as a result, in jurisdictions with cumulative losses, we have provided for a full valuation allowance on deferred tax assets.

Evaluating the need for a valuation allowance for deferred tax assets requires judgment and analysis of all available positive and negative evidence, including recent earnings history and cumulative losses in recent years, reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies to determine whether all or some portion of the deferred tax assets will not be realized.

Forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years.

Using available evidence and judgment, we establish a valuation allowance for deferred tax assets, when it is determined that it is more likely than not that they will not be realized.

Valuation allowances have been provided primarily against the U.S.

and state research and development credits and certain acquired net operating losses and deferred tax assets of foreign subsidiaries.

Valuation allowances have been provided primarily against U.S.

federal and state research and development credits and certain acquired net operating losses and deferred tax assets of foreign subsidiaries.

A change in the assessment of the realizability of deferred tax assets may materially impact our tax provision in the period in which a change of assessment occurs.

Taxes due on Global Intangible Low-Taxed Income (GILTI) exclusions in U.S.

Taxes due on Global Intangible Low-Taxed Income (“GILTI”) inclusions in U.S.

are recognized as a current period expense when incurred.

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The taxation of our business is subject to the application of various and sometimes conflicting tax laws and regulations as well as multinational tax conventions.

Our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses, tax laws and regulations in various jurisdictions, tax incentives, the availability of tax credits and loss carryforwards, and the effectiveness of our tax planning strategies, which includes our estimates of the fair value of our intellectual property.

Our effective tax rate is highly dependent upon the geographic distribution of our worldwide earnings or losses, the tax laws and regulations in various jurisdictions, the availability of tax incentives, tax credits and loss carryforwards, and the effectiveness of our tax planning strategies, which includes our estimates of the fair value of our intellectual property.

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty.

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Recognized income tax positions are measured at the largest amount that is more than 50% likely to be realized.

Changes in recognition or measurement with respect to our uncertain tax positions are reflected in the period in which a change in judgment occurs.

Changes in judgment regarding the recognition or measurement of uncertain tax positions are reflected in the period in which the change occurs.

We record interest and penalties related to unrecognized tax benefits in income tax expense.

The calculation of our tax liabilities involves the inherent uncertainty associated with complex tax laws.

We believe we have adequately provided for in our financial statements additional taxes that we estimate to be required as a result of such examinations.

We believe we have adequately provided for in our financial statements additional taxes that we estimate to be required to be paid as a result of such examinations.

While we believe that we have adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than our accrued position.

Any unpaid tax liabilities, including the interest and penalties, are released pursuant to a final settlement with tax authorities, completion of audit or expiration of various statutes of limitation.

The material jurisdictions in which we are subject to potential examination by tax authorities throughout the world include China, India, Israel, Singapore, Germany, and the United States.

Unpaid tax liabilities, including the interest and penalties, are released pursuant to a final settlement with tax authorities, completion of audit or expiration of various statutes of limitations.

The material jurisdictions in which we may be subject to examination by tax authorities throughout the world include China, India, Israel, Singapore, Germany, and the United States.

The recognition and measurement of current taxes payable or refundable, and deferred tax assets and liabilities require that we make certain estimates and judgments.

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Long-Lived Assets and Intangible Assets.

We assess the impairment of long-lived assets and intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.

We assess the impairment of long-lived assets and intangible assets whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable.

Circumstances which could trigger a review include, but are not limited to the following:

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• current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.

Whenever events or changes in circumstances suggest that the carrying amount of long-lived assets and intangible assets may not be recoverable, we estimate the future cash flows expected to be generated by the asset from its use or eventual disposition.

If the sum of the expected future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Whenever events or changes in circumstances suggest that the carrying amount of long-lived assets and intangible assets may not be recoverable, we estimate the future cash flows, undiscounted and without interest charges, expected to be generated by the asset from its use or eventual disposition.

If the sum of the expected undiscounted future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Significant management judgment is required in the forecasts of future operating results that are used in the discounted cash flow method of valuation.

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We record goodwill when the consideration paid for a business acquisition exceeds the fair value of net tangible and intangible assets acquired.

We review goodwill for impairment annually on the last business day of our fiscal fourth quarter, and more frequently, if an event occurs or circumstances change that indicate the fair value of the reporting unit may be below its carrying amount.

Goodwill is measured and tested for impairment annually on the last business day of our fiscal fourth quarter, and more frequently, if an event occurs or circumstances change that indicate the fair value of the reporting unit may be below its carrying amount.

We have identified that our business operates as a single operating segment and as a single reporting unit for the purpose of goodwill impairment testing.

When testing goodwill for impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value or we may determine to proceed directly to the quantitative impairment test.

When testing goodwill for impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount or we may determine to proceed directly to the quantitative impairment test.

Factors we consider important in the qualitative assessment which could trigger a goodwill impairment review include;

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• a significant change in our market capitalization relative to our net book value.

If we assess qualitative factors and conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we determine not to use qualitative assessment, then a quantitative impairment test is performed.

If we assess qualitative factors and conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we determine not to use the qualitative assessment, then a quantitative impairment test is performed.

The quantitative impairment test requires comparing the fair value of the reporting unit to its carrying value, including goodwill.

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As of the last day of the fourth quarter of fiscal 2024, we performed our annual impairment assessment for testing goodwill.

A step one assessment was performed.

A quantitative assessment was performed.

Based on our assessment, we determined there was no goodwill impairment.

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Results of Operations

Years Ended January 28, 2023 and January 29, 2022

Years Ended February 3, 2024 and January 28, 2023

The following table sets forth information derived from our consolidated statements of operations expressed as a percentage of net revenue:

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Income (loss) before income taxes (13.7) 1.4

Provision (benefit) for income taxes 4.2 (1.4)

Provision for income taxes

Net loss (16.9) % (2.8) %

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Net revenue $ 5,507.7 $ 5,919.6 (7.0) %

Our net revenue for fiscal 2023 increased by $1.5 billion compared to net revenue for fiscal 2022.

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 fiscal 2023 compared to fiscal 2022.

The overall increase in revenue of 33% for fiscal 2023 was 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 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 sales of products and higher unit shipments.

Our net revenue for fiscal 2024 decreased by $411.9 million compared to net revenue for fiscal 2023.

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

Sales decreased from the data center end market by 8%, from the enterprise networking end market by 10%, from the consumer end market by 11%, and from the carrier infrastructure end market by 3%.

The decreases were partially offset by an increase in sales from the automotive/industrial end market by 9% compared to fiscal 2023.

The overall decrease in net revenue of 7% for fiscal 2024 was primarily driven by lower unit shipments related to storage products, partially offset by higher average selling prices for certain products as well as an increase in demand for our optical products, driven by AI applications.

Cost of Goods Sold and Gross Profit

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% of net revenue 41.6 % 50.5 %

Cost of goods sold as a percentage of net revenue decreased for fiscal 2023 compared to fiscal 2022 primarily due to lower amortization of inventory fair value adjustment and acquired intangible assets as a percentage of net revenue.

As a result, gross profit for fiscal 2023 increased 4.2 percentage points compared to fiscal 2022.

Cost of goods sold as a percentage of net revenue increased for fiscal 2024 compared to fiscal 2023, which includes charges of $251.0 million for product related claim matters that were fully resolved in the fourth quarter of fiscal 2024, as well as a shift in product mix.

Refer to “Note 6 - Commitments and Contingencies” in the Notes to Consolidated Financial Statements for further information on the product related claim matters.

As a result, gross margin for fiscal 2024 decreased 8.9 percentage points compared to fiscal 2023.

Research and Development

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Research and development expense increased by $111.9 million in fiscal 2024 compared to fiscal 2023.

The increase was primarily due to $255.1 million of higher employee personnel-related costs, including $99.2 million of higher stock-based compensation expense, as a result of headcount increases, including the addition of new employees from our recent acquisitions, $42.0 million of higher engineering design costs, and $24.9 million higher depreciation and amortization costs.

The increase was primarily due to $57.4 million of higher engineering design costs and $45.6 million of higher employee compensation related costs.

Selling, General and Administrative

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% of net revenue 15.1 % 14.3 %

Selling, general and administrative expense decreased by $111.7 million in fiscal 2023 compared to fiscal 2022.

The decrease was primarily due to a $97.9 million decrease in transaction and integration costs associated with our acquisitions of Inphi and Innovium, Inc.

(“Innovium”) that were incurred in the prior year.

In addition, our employee personnel-related costs were lower by $13.7 million due to lower stock based compensation expense mainly related to accelerated vesting of Inphi equity awards incurred in the prior year as part of the Inphi acquisition.

Selling, general and administrative expense was relatively flat in fiscal 2024 compared to fiscal 2023.

Stock-Based Compensation Expense

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Stock-based compensation expense increased by $57.4 million in fiscal 2024 compared to fiscal 2023.

Stock-based compensation under research and development and cost of goods sold increased by $99.2 million and $12.2 million, respectively, partially offset by decrease under selling, general and administrative expense by $36.5 million.

The increase was mainly due to additional equity awards assumed as part of the Inphi and Innovium acquisitions as described in “Note 7 – Business Combinations” and “Note 12 – Employee Benefit Plans” in the Notes to the Consolidated Financial Statements.

The decrease in stock-based compensation expense under selling, general and administrative expense was mainly related to accelerated vesting of Inphi/Innovium equity awards incurred in the prior year as part of the Inphi and Innovium acquisitions.

Stock-based compensation under research and development, selling, general and administrative, and cost of goods sold increased by $38.7 million, $12.9 million, and $5.8 million, respectively.

The increase was primarily due to an increase in equity awards granted in fiscal 2024 as compared to prior years, as well as an increase in expense associated with our employee stock purchase plan.

Legal Settlement

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We recorded a charge of $100.0 million in fiscal year 2023 related to the settlement of a contractual dispute.

Refer to “Note 6 – Commitments and Contingencies” in the Notes to the Consolidated Financial Statements for a discussion of this settlement.

We recorded a charge of $100.0 million in fiscal 2023 related to the settlement of a contractual dispute.

Refer to “Note 6 – Commitments and Contingencies” in the Notes to Consolidated Financial Statements for further information.

Restructuring Related Charges

2024 January 28,

2022 January 30,

(in millions)

Restructuring related charges $ 131.1 $ 21.6

Fiscal 2023 vs Fiscal 2022 :

We recorded total restructuring related charges of $21.6 million in fiscal 2023 as we integrated the acquired businesses and continued to evaluate our existing operations to increase operational efficiency, decrease costs and improve profitability.

Fiscal 2022 vs Fiscal 2021 :

During the second quarter of fiscal 2021, we made changes to the scope of our server processor product line in response to changes in the associated market.

We transitioned our product offering from standard server processors to the broad server market to focus only on customized server processors for a few targeted customers.

This change in strategy required us to assess whether the carrying value of the associated assets would be recoverable.

As a result of the assessment, we determined the carrying amount of certain impacted assets were not recoverable, which resulted in recognition of $119.0 million of restructuring related charges associated with the server processor product line during the second quarter of fiscal 2021.

The charges included $50.3 million in impairment of acquired intangibles, $36.0 million in impairment of purchased IP licenses and $32.7 million in equipment and inventory impairment and other related restructuring charges.

The remaining restructuring charges of $61.4 million include approximately $36.9 million in severance and related costs and $24.5 million in other costs.

The severance costs primarily relate to the employee separation costs in connection with the acquisitions.

The other costs primarily relate to the remaining payments under lease obligations upon vacating certain worldwide office locations, and ongoing operating expenses of vacated facilities.

See “Note 10 – Restructuring” in the Notes to the Consolidated Financial Statements for further information.

We recorded total restructuring related charges of $131.1 million in fiscal 2024 as a result of our restructuring plan to streamline our organization and optimize resources.

Refer to “Note 10 – Restructuring” in the Notes to Consolidated Financial Statements for further information.

Interest Income

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% of net revenue 0.2 % 0.1 %

Interest income increased by $4.5 million in fiscal 2023 compared to fiscal 2022 due to higher interest rates on our invested cash and higher cash balance.

Interest income increased by $3.5 million in fiscal 2024 compared to fiscal 2023 due to higher interest rates on our invested cash.

Interest Expense

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Interest expense increased by $41.1 million in fiscal 2024 compared to fiscal 2023.

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

The increase was primarily due to higher interest expense associated with the 2024 and 2026 Term Loans, as well as interest expense associated with the 2029 and 2033 Senior Notes issued during the third quarter of fiscal 2024.

Refer to “Note 4 – Debt” in the Notes to Consolidated Financial Statements for further information.

Other Income, net

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% of net revenue 0.2 % 0.2 %

Other income, net increased by $9.7 million in fiscal 2023 compared to fiscal 2022.

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

Provision (Benefit) for Income Taxes

Other income, net was relatively flat in fiscal 2024 compared to fiscal 2023.

Provision for Income Taxes

2024 January 28,

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(in millions, except percentage)

Provision (benefit) for income taxes $ 248.6 $ (62.5) (497.8) %

Provision for income taxes

$ 174.7 $ 248.6 (29.7) %

The income tax expense for fiscal 2024 differs from the U.S.

federal statutory rate of 21% primarily due to the remeasurement of Singapore deferred taxes upon extension of the Company’s tax incentive in Singapore, tax benefits attributable to reduction in tax reserves as a result of settled income tax audits in combination with the lapsing of statute of limitations, offset by foreign income inclusions in the U.S., and a tax expense related to the recapture of Israel corporate income taxes.

The income tax expense for fiscal 2023 is also impacted by a substantial portion of the Company’s earnings, or in some cases, losses being taxed or benefited at rates lower than the U.S.

federal statutory rate of 21% as a result of foreign income inclusions in the U.S., a portion of our earnings or losses being taxed or benefited at rates lower than the U.S.

statutory rate, research and development credit generation, and disallowed deductions related to non-deductible compensation.

Further, during fiscal 2024, guidance was issued by the U.S.

Internal Revenue Service in connection with the capitalization of research and development expenditures.

As a result of this guidance, certain costs are currently deductible rather than capitalizable, which resulted in a reduction to our income tax payable and an increase in our deferred tax assets for which we maintain a full valuation allowance.

The income tax expense for fiscal 2023 differed from the U.S.

federal statutory rate of 21% primarily due to the remeasurement of Singapore deferred taxes upon extension of our tax incentive in Singapore, tax benefits attributable to reduction in tax reserves as a result of settled income tax audits in combination with the lapsing of statute of limitations, offset by foreign income inclusions in the U.S., and a tax expense related to the recapture of Israel corporate income taxes.

The income tax expense for fiscal 2023 is also impacted by a substantial portion of our earnings, or in some cases, losses being taxed or benefited at rates lower than the U.S.

statutory rate, stock compensation tax benefits, and disallowed deductions related to non-deductible compensation.

The income tax benefit for fiscal 2022 differed from the U.S.

federal statutory rate of 21% primarily due to tax benefits of stock-based compensation, offset by foreign income inclusions in the U.S.

and non-deductible compensation.

We continue to evaluate potential changes to our legal entity structure in response to guidelines and requirements in various international tax jurisdictions where we conduct business, as well as changes to our business, and acquisitions and divestitures.

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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Liquidity and Capital Resources

Our principal source of liquidity as of January 28, 2023 consisted of approximately $911.0 million of cash and cash equivalents, of which approximately $642.0 million was held by subsidiaries outside of the United States.

Our principal source of liquidity as of February 3, 2024 consisted of approximately $950.8 million of cash and cash equivalents, of which approximately $744.1 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 13 – Income Taxes” in the Notes to the Consolidated Financial Statements for further information.

See “Note 13 – Income Taxes” in the Notes to Consolidated Financial Statements for further information.

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.

For the year ended January 28, 2023, we repaid $65.6 million of the principal outstanding on the 2026 Term Loan.

As of January 28, 2023, we had $735.0 million borrowings outstanding under the 2024 Term Loan and $787.5 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 (the “2020 Revolving Credit Facility”).

During the year ended January 28, 2023 we drew down $200.0 million on the 2020 Revolving Credit Facility which has been fully repaid at January 28, 2023.

As of January 28, 2023, we had $2.0 billion aggregate principal amount of Senior Notes outstanding and $1.0 billion in aggregate principal amount of the MTG/MTI Senior Notes outstanding.

The notes are registered under the Securities Act.

For a description of our contractual obligations including debt, leases, and purchase commitments, see “Note 4 – Debt,” “Note 5 – Leases,” and “Note 6 – Commitments and Contingencies” in the Notes to the Consolidated Financial Statements.

In addition, see “Note 13 – Income Taxes” regarding tax related contingencies and uncertain tax positions in the Notes to the Consolidated Financial Statements.

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 Secured Overnight Financing Rate (“SOFR”) interest rates and conform the maximum leverage ratio financial covenant with the amended and restated revolving credit agreement.

During the quarter ended October 28, 2023, we repaid in full the 3-Year Tranche Loan, due on April 19, 2024 (“2024 Term Loan”), which had a remaining principal of $735.0 million.

For the year ended February 3, 2024, we repaid $87.5 million of the principal outstanding of the 5-Year Tranche Loan (“2026 Term Loan”).

As of February 3, 2024, we had $700.0 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 quarter ended April 29, 2023, we drew down $200.0 million on the 2023 Revolving Credit Facility.

During the quarter ended July 29, 2023, the Company drew down $50.0 million on the 2023 Revolving Credit Facility and repaid $50.0 million in the same quarter.

During the quarter ended October 28, 2023, we repaid the outstanding 2023 Revolving Credit Facility of $200.0 million.

Further, we drew down an additional $50.0 million on the 2023 Revolving Credit Facility and repaid $50.0 million in the same quarter.

As of February 3, 2024, the 2023 Revolving Credit Facility is undrawn and will be available for draw down through April 14, 2028.

During the quarter ended July 29, 2023, the MTI 2023 Notes and MTG 2023 Notes with aggregate principal of $500.0 million matured on June 22, 2023 and was repaid.

On September 18, 2023, we completed a debt offering and issued (i) $500.0 million of Senior Notes with a 5.5-year term due in 2029 (“2029 Senior Notes”) and (ii) $500.0 million of Senior Notes with a 10-year term due in 2033 (“2033 Senior Notes”).

As of February 3, 2024, we had total borrowings outstanding of $4.2 billion, consisting of $3.5 billion of senior notes outstanding and $700.0 million outstanding under the 2026 Term Loan.

In addition, see “Note 13 – Income Taxes” regarding tax related contingencies and uncertain tax positions in the Notes to Consolidated Financial Statements.

We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.

We believe that our existing cash, cash equivalents, together with cash generated from operations, and funds from our 2020 Revolving Credit Facility will be sufficient to cover our working capital needs, capital expenditures, investment requirements, any declared dividends, repurchases of our common stock and commitments (including those discussed in “Note 6 – Commitments and Contingencies” in the Notes to the Consolidated Financial Statements) for at least the next twelve months.

We may elect to factor trade accounts receivable from time to time as part of our overall liquidity and working capital management strategy.

During the year ended February 3, 2024, we generated cash from operations from the sale of certain trade accounts receivable on a non-recourse basis to a third-party financial institution pursuant to a factoring arrangement.

See “Note 16 - Supplemental Financial Information” in the Notes to Consolidated Financial Statements for additional information.

We believe that our existing cash, cash equivalents, together with cash generated from operations, and funds from our 2023 Revolving Credit Facility will be sufficient to cover our working capital needs, capital expenditures, investment requirements, any declared dividends, repurchases of our common stock and commitments (including those discussed in “Note 6 – Commitments and Contingencies” in the Notes to Consolidated Financial Statements) for at least the next twelve months.

Our capital requirements will depend on many factors, including our rate of sales growth, market acceptance of our products, costs of securing access to adequate manufacturing capacity, the timing and extent of research and development projects and increases in operating expenses, all of which are subject to uncertainty.

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Cash Flows from Operating Activities

Net cash provided by operating activities was $1.4 billion for fiscal 2024 compared to net cash provided by operating activities of $1.3 billion for fiscal 2023.

We had a net loss of $933.4 million adjusted for the following non-cash items:

amortization of acquired intangible assets of $1.1 billion, stock-based compensation expense of $609.8 million, depreciation and amortization of $299.8 million, deferred income tax expense of $150.8 million, restructuring related impairment charges of $32.9 million, amortization of deferred debt issuance costs and debt discounts of $10.7 million, and $44.2 million net loss from other non-cash items.

Cash inflow from working capital of $57.8 million for fiscal 2024 was primarily driven by a decrease in accounts receivable, and a decrease in inventories, partially offset by cash outflows due to an increase in prepaid expenses and other assets, and a decrease in accounts payable.

The decrease in accounts receivable was primarily due to timing of billing and collections and the impact of factoring of receivables.

The decrease in inventory was a result of utilizing previously built buffers.

The increase in prepaid expenses and other assets was primarily due to prepayments on supply capacity reservation agreements net of refunds, and an increase in ship and debit reserve.

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

Net cash provided by operating activities was $1.3 billion for fiscal 2023 compared to net cash provided by operating activities of $819.3 million for fiscal 2022.

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Cash outflow from working capital of $649.8 million for fiscal 2023 was primarily driven by an increase in accounts receivable, an increase in inventories, an increase in prepaid expenses and other assets, and a decrease in accounts payable partially offset by cash inflows due to an increase in accrued liabilities and other non-current liabilities, and an increase in accrued employee compensation.

The increase in accounts receivable was primarily due to increase sales, as well as changes to the timing of shipments due to evolving supply chain dynamics.

The increase in accounts receivable was primarily due to increase in sales, as well as changes to the timing of shipments due to evolving supply chain dynamics.

We increased inventory in order to better support unfulfilled backlog, new product ramps and the impact from inventory correction late in the year.

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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 of payments.

Net cash provided by operating activities was $819.3 million for fiscal 2022.

We had a net loss of $421.0 million adjusted for the following non-cash items:

amortization of acquired intangible assets of $979.4 million, stock-based compensation expense of $460.7 million, depreciation and amortization of $265.9 million, amortization of inventory fair value adjustment associated with Inphi and Innovium acquisitions of $194.3 million, deferred income tax benefit of $93.9 million, amortization of deferred debt issuance costs and debt discounts of $21.6 million, restructuring related impairment charges of $6.2 million and $69.0 million net loss from other non-cash items.

Cash outflow from working capital of $662.9 million was primarily driven by an increase in accounts receivable, an increase in inventories and an increase in prepaid expenses and other assets.

Such increases were partially offset by cash inflows due to an increase in accounts payable, an increase in accrued liabilities and other non-current liabilities and an increase in accrued employee compensation.

The increase in accounts receivable was driven primarily by the increase in revenue and stable collections.

The increase in inventories is due to strong organic revenue growth and business acquisitions during the year as well as higher materials and manufacturing prices.

The increase in prepaid expenses and other assets was due to payments for capacity reservation agreements and an increase in ship and debit reserve.

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

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

The increase in accrued employee compensation was due to the increase in our bonus accrual.

Cash Flows from Investing Activities

Net cash used in investing activities of $350.5 million in fiscal 2024 was primarily driven by the purchases of property and equipment of $336.3 million, and purchases of technology licenses of $13.9 million.

Net cash used in investing activities of $328.4 million in fiscal 2023 was primarily driven by the purchases of property and equipment of $206.2 million, net cash consideration for business acquisitions of $112.3 million , and purchases of technology licenses of $11.1 million.

Net cash used in investing activities of $3.7 billion in fiscal 2022 was primarily driven by the net cash consideration for business acquisitions of $3.6 billion, purchases of property and equipment of $169.2 million and purchases of technology licenses of $17.7 million.

Cash Flows from Financing Activities

Net cash used in financing activities of $980.2 million in fiscal 2024 was primarily attributable to $1.6 billion repayment of debt principal, $223.7 million for withholding tax paid on behalf of employees for net share settlement, $206.8 million payment for our quarterly dividends, $150.3 million payments for technology license obligations, and $150.0 million repurchases of common stock.

These outflows were partially offset by $1.3 billion proceeds from issuance of debt, and $99.2 million proceeds from the issuance of our common stock under our equity incentive plans.

Net cash used in financing activities of $662.9 million in fiscal 2023 was primarily attributable to $265.6 million repayment of debt principal, $227.6 million for withholding tax paid on behalf of employees for net share settlement, $204.4 million payment for our quarterly dividends, $142.5 million payments for technology license obligations, and $115.0 million repurchases of common stock.

These outflows were partially offset by proceeds from issuance of debt of $200.0 million, and $91.3 million proceeds from the issuance of our common stock under our equity inventive plans.

Net cash provided by financing activities of $2.8 billion in fiscal year 2022 was primarily attributable to proceeds from issuance of debt of $3.9 billion, $160.3 million proceeds from capped calls and $84.5 million proceeds from the issuance of our common stock under our equity inventive plans.

These inflows were partially offset by $526.8 million repayment of debt principal, $305.8 million for withholding tax paid on behalf of employees for net share settlement, $191.0 million payment for our quarterly dividends, $181.2 million payment for repurchases and settlement of convertible notes, $134.5 million payments for technology license obligations and $11.8 million payments for debt financing and equity issuance costs associated with the Inphi acquisition.

These outflows were partially offset by proceeds from issuance of debt of $200.0 million, and $91.3 million proceeds from the issuance of our common stock under our equity incentive plans.

Recent Accounting Pronouncements

Please see “Note 2 – Significant Accounting Policies - Recent Accounting Pronouncements” in our Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this Annual Report on Form 10-K.

Please see “Note 2 – Significant Accounting Policies - Recent Accounting Pronouncements” in our Notes to Consolidated Financial Statements set forth in Part II, Item 8 of this Annual Report on Form 10-K.

Related Party Transactions

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis