What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-31 compared with 2023-12-01 · 113 added, 186 removed, 127 unchanged (70% of the section changed)

5 unchanged sentences

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

• 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.

• risks related to changes in general macroeconomic conditions such as economic slowdowns, inflation, stagflation, high or 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 our ability to scale our business;

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

• 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 debt obligations;

• 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;

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• risks related to our ability to maintain a competitive cost structure for our manufacturing, assembly, testing and packaging processes and our reliance on third parties to produce our products;

• risks related to our ability to scale our business;

• risks related to our debt obligations;

• risks related to the extension of lead time due to supply chain disruptions, component shortages that impact the costs and production of our products and kitting process, and constrained availability from other electronic suppliers impacting our customers’ ability to ship their products, which in turn may adversely impact our sales to those customers;

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

• 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;

• risks related to the potential impact of significant events or natural disasters, or the effects of climate change (such as drought, 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 sustainability programs;

• cybersecurity risks;

• 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;

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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 the third quarter of fiscal 2024 was $1.4 billion and was 8% lower than net revenue of $1.5 billion in the third quarter of fiscal 2023.

This was due to a decrease in sales to the data center end market by 11%, a decrease in sales to the enterprise networking end market by 28% and a decrease in sales to the consumer end market by 5%.

These decreases were partially offset by an increase in sales to the automotive/industrial end market by 26% and an increase in sales to the carrier infrastructure end market by 17%.

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.

Net revenue in the first quarter of fiscal 2025 was $1.2 billion and was 12% lower than net revenue of $1.3 billion in the first quarter of fiscal 2024.

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

Sales decreased from the carrier infrastructure end market by 75%, from the enterprise networking end market by 58%, from the consumer end market by 70% and from the automotive/industrial end market by 13%.

The decreases were partially offset by an increase in sales from the data center end market by 87% compared to the three months ended April 29, 2023.

We have seen strong revenue growth from our data center end market, driven by demand for our electro-optics products from AI applications.

In addition, starting in the first quarter of fiscal 2025, we have also started to benefit from initial shipments of our custom AI compute products.

In our enterprise networking and carrier infrastructure end markets, in response to a period of inventory correction and soft industry demand, customers have decreased their demand for our products.

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 5 – Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

See “Note 5 – Commitments and Contingencies” in the Notes to Unaudited Condensed 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 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 .

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 $3.4 million and $105.3 million for the three and nine months ended October 28, 2023.

See “Note 8 - Restructuring” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

See also Part II, 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.”

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.

During the nine months ended October 28, 2023, the Company repurchased 0.8 million shares of its common stock for $50.0 million pursuant to a 10b5-1 trading plan.

As of October 28, 2023, $399.5 million remained available for future stock repurchases.

As of October 28, 2023, a total of 311.3 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 $204.9 million to stockholders in the nine months ended October 28, 2023, including our repurchases of common stock and $154.9 million in cas h dividends.

On March 7, 2024, we announced that our Board of Directors authorized a $3.0 billion addition to the balance of its existing stock repurchase program.

During the three months ended May 4, 2024, we repurchased 2.2 million shares of our common stock for $150.0 million.

As of May 4, 2024, $3.1 billion remained available for future stock repurchases.

As of May 4, 2024, a total of 315.0 million shares have been repurchased since inception of our current and previous stock repurchase programs for an aggregate total of $4.7 billion in cash.

We returned $201.8 million to stockholders in the three months ended May 4, 2024 through $150.0 million in repurchases of shares of our common stock and $51.8 million in cash dividends.

Cash and Short-Term Investments.

Our cash and cash equivalents were $725.6 million at October 28, 2023, which were $185.4 million lower than our balance at our fiscal year ended January 28, 2023 of $911.0 million.

Our cash and cash equivalents were $847.7 million at May 4, 2024, which were $103.1 million lower than our balance at February 3, 2024 of $950.8 million.

Sales and Customer Composition.

Our accounts receivable was concentrated with four customers at October 28, 2023, who represented a total of 72% of gross accounts receivable, compared with four customers at October 29, 2022, who represented 56% of gross accounts receivable.

During the three months ended October 28, 2023, there was one customer in addition to one distributor, whose revenue as a percentage of net revenue was 10% or greater of total net revenue.

During the nine months ended October 28, 2023, there were two customers, in addition to one distributor, whose revenue as a percentage of net revenue was 10% or greater of total net revenue.

During the three and nine months ended October 29, 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 Nine Months Ended

2023 October 29,

2022 October 28,

2023 October 29,

Our accounts receivable was concentrated with two customers at May 4, 2024, who represented a total of 70% of gross accounts receivable, compared with four customers at April 29, 2023, who represented 55% of gross accounts receivable.

During the three months ended May 4, 2024, there were two customers in addition to one distributor, whose revenue as a percentage of net revenue was 10% or greater of total net revenue.

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.

Net revenue attributable to significant customers and distributors 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

2024 April 29,

Customer A * 15%

Distributor A 39% 16%

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 66% and 68% of our net revenue in the three and nine months ended October 28, 2023, respectively, and approximately 75% and 76% of net revenue in the three and nine months ended October 29, 2022, respectively.

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 a majority of our products are manufactured outside the United States.

Sales shipped to customers with operations in Asia represented approximately 73% of our net revenue in the three months ended May 4, 2024, and approximately 69% of our net revenue in the three months ended April 29, 2023.

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 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

There have been no material changes during the three months ended October 28, 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.

There have been no material changes during the three months ended May 4, 2024 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 February 3, 2024.

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

2023 October 29,

2022 October 28,

2023 October 29,

Three Months Ended

2024 April 29,

Net revenue 100.0 % 100.0 %

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Selling, general and administrative 17.2 15.1

Legal settlement — — — 2.2

Restructuring related charges 0.4 4.5

Total operating expenses 58.6 56.0

Operating income (loss) (10.2) 7.0 (13.1) 4.8

Interest income 0.1 0.1 0.2 0.1

Interest expense (3.7) (2.9) (3.9) (2.7)

Other income (loss), net 0.7 0.2 0.4 0.3

Income (loss) before income taxes (13.1) 4.4 (16.4) 2.5

Operating loss (13.1) (13.8)

Interest and other loss, net (3.9) (3.8)

Loss before income taxes (17.0) (17.6)

Provision (benefit) for income taxes 1.6 (4.8)

Net income (loss) (11.5) % 1.0 % (13.2) % (3.2) %

Three and nine months ended October 28, 2023 and October 29, 2022

Three Months Ended Nine Months Ended

2023 October 29,

Change October 28,

2023 October 29,

Net loss (18.6) % (12.8) %

Three months ended May 4, 2024 and April 29, 2023

Three Months Ended

2024 April 29,

(in millions, except percentage)

Net revenue $ 1,160.9 $ 1,321.7 (12.2)%

Our net revenue for the three months ended October 28, 2023 decreased by $118.7 million compared to net revenue for the three months ended October 29, 2022.

This was due to a decrease in sales to the data center end market by 11%, a decrease in sales to the enterprise networking end market by 28% and a decrease in sales to the consumer end market by 5%.

The decreases were partially offset by an increase in sales to the automotive/industrial end market by 26% and an increase in sales to the carrier infrastructure end market by 17%.

Our net revenue for the nine months ended October 28, 2023 decreased by $419.9 million compared to net revenue for the nine months ended October 29, 2022.

This was due to a decrease in sales to the data center end market by 24%, a decrease in sales to the consumer end market by 8% and a decrease in sales to the enterprise networking end market by 4%.

The decreases were partially offset by an increase in sales to the automotive/industrial end market by 19% and an increase in sales to the carrier infrastructure end market by 9%.

The ove rall decreases in net revenue of 8% and 9%, respectively, for the three and nine months ended October 28, 2023 compared to the three and nine months ended October 29, 2022, were primarily driven by lower unit shipments related to storage products.

Our net revenue for the three months ended May 4, 2024 decreased by $160.8 million compared to net revenue for the three months ended April 29, 2023.

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

The decreases were partially offset by an increase in sales from the data center end market by 87% compared to the three months ended April 29, 2023.

The overall decreases in net revenue of 12% for the three months ended May 4, 2024 was primarily driven by lower unit shipments across all of our end markets except the data center end market, 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

Three Months Ended Nine Months Ended

2023 October 29,

Change October 28,

2023 October 29,

Three Months Ended

2024 April 29,

(in millions, except percentage)

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% of net revenue 45.5 % 42.2 %

Cost of goods sold as a percentage of net revenue increased for the three and nine months ended October 28, 2023 compared to the three and nine months ended October 29, 2022, which is primarily due to charges for product claim related matters.

Refer to “Note 5 - Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

As a result, gross margin for the three and nine months ended October 28, 2023 decreased by 11.7 and 11.5 percentage points compared to the three and nine months ended October 29, 2022.

Cost of goods sold as a percentage of net revenue decreased for the three months ended May 4, 2024 compared to the three months ended April 29, 2023, which was primarily due to a shift in product mix.

As a result, gross margin for the three months ended May 4, 2024 increased by 3.3 percentage points compared to the three months ended April 29, 2023.

Research and Development

Three Months Ended Nine Months Ended

2023 October 29,

Change October 28,

2023 October 29,

Three Months Ended

2024 April 29,

(in millions, except percentage)

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% of net revenue 41.0 % 36.4 %

Research and development expense increased by $33.0 million in the three months ended October 28, 2023 compared to the three months ended October 29, 2022.

The increase was primarily due to higher mask prototyping expenses and higher employee compensation related costs.

Research and development expense increased by $95.4 million in the nine months ended October 28, 2023 compared to the nine months ended October 29, 2022.

The increase was primarily due to higher mask prototyping expenses and higher employee compensation related costs.

Research and development expense was relatively flat in the three months ended May 4, 2024, compared to the three months ended April 29, 2023.

Selling, General and Administrative

Three Months Ended Nine Months Ended

2023 October 29,

Change October 28,

2023 October 29,

Three Months Ended

2024 April 29,

(in millions, except percentage)

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% of net revenue 17.2 % 15.1 %

Selling, general and administrative expense increased by $5.2 million in the three months ended October 28, 2023 compared to the three months ended October 29, 2022.

The increase was primarily due to charges for an intellectual property matter.

The increase was partially offset by lower intangibles amortization expense related to intangibles that were fully amortized during fiscal 2024 and lower other marketing expenses.

Selling, general and administrative expense decreased by $18.2 million in the nine months ended October 28, 2023 compared to the nine months ended October 29, 2022.

The decrease was primarily due to $16.0 million of lower intangibles amortization expense related to intangibles that were fully amortized during fiscal 2023 and fiscal 2024 and $3.3 million of lower employee compensation related costs.

Legal Settlement

Three Months Ended Nine Months Ended

2023 October 29,

Change October 28,

2023 October 29,

(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” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Selling, general and administrative expense was relatively flat in the three months ended May 4, 2024, compared to the three months ended April 29, 2023.

Restructuring Related Charges

Three Months Ended Nine Months Ended

2023 October 29,

Change October 28,

2023 October 29,

Three Months Ended

2024 April 29,

(in millions, except percentage)

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% of net revenue 0.4 % 4.5 %

We recognized $3.4 million and $105.3 million of total restructuring related charges in the three and nine months ended October 28, 2023 as a result of our restructuring plan to streamline our organization and optimize resources.

Refer to “Note 8 – Restructuring” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Interest Income

Three Months Ended Nine Months Ended

2023 October 29,

Change October 28,

2023 October 29,

(in millions, except percentage)

Interest income $ 1.7 $ 1.5 13.3% $ 5.8 $ 2.8 107.1%

% of net revenue 0.1 % 0.1 % 0.2 % 0.1 %

Interest income was relatively flat for the three months ended October 28, 2023, compared to the three months ended October 29, 2022.

Interest income increased by $3.0 million in the nine months ended October 28, 2023, compared to the nine months ended October 29, 2022 due to higher interest rates on our invested cash.

Interest Expense

Three Months Ended Nine Months Ended

2023 October 29,

Change October 28,

2023 October 29,

We recognized $4.1 million of total restructuring related charges in the three months ended May 4, 2024 as a result of our restructuring plan to streamline our organization and optimize resources.

Refer to “Note 8 – Restructuring” in the Notes to Unaudited Condensed Consolidated Financial Statements for further information.

Interest and Other Loss, Net

Three Months Ended

2024 April 29,

(in millions, except percentage)

Interest expense $ (48.8) $ (52.7) (7.4)%

% of net revenue (3.7) % (2.9) % (3.9) % (2.7) %

Interest expense increased by $7.4 million and $37.8 million in the three and nine months ended October 28, 2023, respectively, compared to the three and nine months ended October 29, 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

2023 October 29,

Change October 28,

2023 October 29,

(in millions, except percentage)

Other income, net $ 9.7 $ 3.2 203.1% $ 16.3 $ 12.1 34.7%

Interest income and other, net

3.3 2.8 17.9%

Interest and other loss, net

$ (45.5) $ (49.9) (8.8)%

% of net revenue (3.9) % (3.8) %

Other income, net, increased by $6.5 million and $4.2 million in the three months and nine months ended October 28, 2023 , respectively, compared to the three and nine months ended October 29, 2022 .

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

Interest and other loss, net decreased by $4.4 million in the three months ended May 4, 2024, compared to the three months ended April 29, 2023.

The decrease was primarily due to a decrease in interest expense driven by lower outstanding term loan balances, partially offset by interest expense associated with the 2029 and 2033 Senior Notes issued during the third quarter of fiscal 2024.

Provision (Benefit) for Income Taxes

Three Months Ended Nine Months Ended

2023 October 29,

Change October 28,

2023 October 29,

Three Months Ended

2024 April 29,

(in millions, except percentage)

Provision (benefit) for income taxes $ 17.8 $ (63.4) (128.1)%

Our income tax benefit for the three months ended October 28, 2023 was $23.2 million compared to a tax expense of $52.0 million for the three months ended October 29, 2022.

Our income tax benefit of $23.2 million for the three months ended October 28, 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.

Our income tax expense for the three months ended May 4, 2024 was $17.8 million compared to a tax benefit of $63.4 million for the three months ended April 29, 2023.

Our income tax expense of $17.8 million for the three months ended May 4, 2024 differed from the U.S.

federal statutory tax rate of 21%, 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 benefit for the three months ended October 29, 2022 differed from the U.S.

federal tax rate of 21% primarily due to a discrete income tax expense related to the Israel clawback tax on earnings prior to fiscal 2023.

Our income tax benefit for the nine months ended October 28, 2023, was $130.7 million compared to a tax expense of $256.4 million for the nine months ended October 29, 2022.

Our income tax benefit of $130.7 million for the nine months ended October 28, 2023, differs from the federal statutory tax rate of 21% primarily due to a substantial portion of earnings or losses being taxed or benefited at rates lower than the U.S.

Our income tax benefit for the three months ended April 29, 2023 differed from the U.S.

federal statutory tax rate of 21%, 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.

Our income tax expense of $256.4 million for the nine months ended October 29, 2022, differed from the 21% federal statutory tax rate 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 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 October 28, 2023 consisted of approximately $725.6 million of cash and cash equivalents, of which approximately $408.3 million was held by subsidiaries outside of the United States.

Our principal source of liquidity as of May 4, 2024 consisted of approximately $847.7 million of cash and cash equivalents, of which approximately $603.1 million was held by subsidiaries outside of the United States, a portion of which are deemed to be indefinitely reinvested.

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 9 – 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 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.

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 three and nine months ended October 28, 2023, we repaid $21.9 million and $65.6 million of the principal outstanding of the 5-Year Tranche Loan (“2026 Term Loan”).

As of October 28, 2023, we had $721.9 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 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 October 28, 2023, 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.

As of October 28, 2023, we had $2.0 billion aggregate principal amount of the Senior Notes outstanding and $499.9 million aggregate principal amount of the MTG/MTI Senior Notes outstanding.

The notes are registered under the Securities Act.

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 and (ii) $500.0 million of Senior Note with a 10-year term due in 2033.

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

As of May 4, 2024, we had total borrowings outstanding of $4.2 billion, consisting of $3.5 billion of senior notes outstanding and $678.1 million outstanding under our 5-Year Tranche Loan (“2026 Term Loan”).

During the three months ended May 4, 2024, we repaid $21.9 million of the principal outstanding of the 2026 Term Loan.

We have a revolving credit facility with a borrowing capacity of up to $1.0 billion and a 5-year term (“2023 Revolving Credit Facility”).

As of May 4, 2024, the 2023 Revolving Credit Facility is undrawn and will be available for draw down through April 14, 2028.

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

In addition, see “Note 9 – Income Tax” regarding tax related contingencies and uncertain tax positions in the Notes to Unaudited Condensed Consolidated Financial Statements.

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

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 three months ended October 28, 2023, 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 11 - Supplemental Financial Information” in the Notes to the Unaudited Condensed 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 5 – Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements) for at least the next twelve months.

During the three months ended May 4, 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 11 – Supplemental Financial Information” in the Notes to Unaudited Condensed 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 5 – Commitments and Contingencies” in the Notes to Unaudited Condensed 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 for the nine months ended October 28, 2023 was $823.9 million.

Net cash provided by operating activities for the three months ended May 4, 2024 was $324.5 million.

We had a net loss of $215.6 million adjusted for the following non-cash items:

amortization of acquired intangible assets of $811.6 million, stock-based compensation expense of $454.5 million, deferred income tax benefit of $283.7 million, depreciation and amortization of $226.0 million, restructuring related impairment charges of $32.2 million, and $39.9 million of net loss from other non-cash items.

Cash inflow from working capital of $84.1 million for the nine months ended October 28, 2023 was primarily driven by decreases in inventory and prepaid expenses and other assets and increases in accrued liabilities and other non-current liabilities, partially offset by the decrease in accounts payable and the increase in accounts receivable.

The decrease in inventory was as a result of managing down our inventory balance.

The decrease in prepaid expenses and other assets was primarily driven by a decrease in prepaid ship and debits due to decreased inventory at distributors.

The increase in accrued liabilities and other non-current liabilities was primarily driven by increases in settlement accruals and income tax payable.

amortization of acquired intangible assets of $264.9 million, stock-based compensation expense of $136.5 million, depreciation and amortization of $72.6 million, deferred income tax benefit of $22.2 million, and $21.8 million of net loss from other non-cash items.

Cash inflow from working capital of $65.8 million for the three months ended May 4, 2024 was primarily driven by decreases in accounts receivable, prepaid expenses and other assets, and inventory, partially offset by decreases in accrued liabilities and other non-current liabilities, accrued employee compensation, and accounts payable.

The decrease in accounts receivable was primarily due to decreased sales.

The decrease in prepaid expenses and other assets was primarily driven by a decrease in prepaid ship and debits due to lower inventory balances at distributors, a decrease in prepaid corporate income tax, partially offset by payments on supply capacity reservation agreements, net of refunds.

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

The decrease in accrued liabilities and other non-current liabilities was primarily driven by lower ship and debit claims accrual due to lower inventory balances at distributors, interest payments net of accruals, and a decrease in stock rotation accruals.

The decrease in accrued employee compensation was due to bonus payout of our annual employee bonus plan.

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

The increase in accounts receivable was primarily due to increased sales partially offset by collections, which included factored receivables.

Net cash 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, restructuring related impairment charges of $4.9 million, and $53.6 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.

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.

Cash Flows from Investing Activities

For the nine months ended October 28, 2023, net cash used in investing activities of $274.3 million was primarily driven by purchases of property and equipment of $265.3 million, net cash paid for business acquisitions of $5.5 million and purchases of technology licenses of $3.3 million.

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 three months ended May 4, 2024, net cash used in investing activities of $101.9 million was primarily driven by purchases of property and equipment of $91.5 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.

Cash Flows from Financing Activities

For the nine months ended October 28, 2023, net cash used in financing activities of $735.0 million was primarily attributable to $1.6 billion repayment of debt, $168.7 million for tax withholding payments on behalf of employees for net share settlements, $154.9 million for payment of our quarterly dividends, and $110.2 million payments on technology license obligations, partially offset by $1.3 billion net proceeds from the issuance of the 2029 and 2033 bonds and from the 2023 Revolving Credit Facility and $61.1 million in proceeds from our employee stock plans.

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 three months ended May 4, 2024, net cash used in financing activities of $325.7 million was primarily attributable to $150.0 million repurchases of common stock, $74.1 million for tax withholding payments on behalf of employees for net share settlements, $51.8 million for payment of our quarterly dividends, $30.2 million payments on technology license obligations, and $21.9 million repayment of debt principal, partially offset by $2.3 million in proceeds from the issuance of common stock under our employee stock plans.

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 the issuance of common stock under 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 principal.

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 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 5 – 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 28, 2023.

We also discuss updates of our significant commitments in “Note 5 – Commitments and Contingencies” in the Notes to 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 three months ended May 4, 2024.

Indemnification Obligations

See “Note 5 – Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.

See “Note 5 – Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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-Q

Item 2. Management’s Discussion and Analysis