What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-28 compared with 2021-04-28 · 155 added, 107 removed, 234 unchanged (53% of the section changed)

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Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this report.

We are a provider of communications systems-on-chip solutions used in broadband, mobile and wireline infrastructure,

data center, and industrial and multi-market applications.

We are a provider of communications systems-on-chip solutions used in broadband, mobile and wireline infrastructure, data center, and industrial and multi-market applications.

We are a fabless integrated circuit design company whose products integrate all or substantial portions of a high-speed communication system, including radio frequency (RF), high-performance analog, mixed-signal, digital signal processing, security engines, data compression and networking layers, and power management.

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In addition, our proprietary CMOS-based radio and digital system architectures also enable shorter design cycles, significant design flexibility and low system-level cost across a wide range of broadband communications, wired and wireless infrastructure, and industrial and multi-market customer applications.

In the three months ended March 31, 2021, revenues were $209.4 million.

In the three months ended March 31, 2021, our net revenue was derived in part from sales of RF receivers and RF receiver systems-on-chip and connectivity solutions into broadband operator voice and data modems and gateways and connectivity adapters, global analog and digital RF receiver products, radio and modem solutions into wireless carrier access and backhaul infrastructure platforms, high-speed optical interconnect solutions sold into optical modules for data-center, metro and long-haul networks, and high-performance interface and power management solutions into a broad range of communications, industrial, automotive and multi-market applications, and in part from revenues attributable to our acquisition of the WiFi and Broadband assets business.

In the six months ended June 30, 2021, revenues were $414.7 million.

In the six months ended June 30, 2021, our net revenue was derived in part from sales of RF receivers and RF receiver systems-on-chip and connectivity solutions into broadband operator voice and data modems and gateways and connectivity adapters, global analog and digital RF receiver products, radio and modem solutions into wireless carrier access and backhaul infrastructure platforms, high-speed optical interconnect solutions sold into optical modules for data-center, metro and long-haul networks, and high-performance interface and power management solutions into a broad range of communications, industrial, automotive and multi-market applications, and in part from revenues attributable to our acquisition of the Wi-Fi and Broadband assets business.

Our ability to achieve revenue growth in the future will depend, among other factors, on our ability to further penetrate existing markets;

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and our ability to obtain design wins with device manufacturers, in particular manufacturers of set-top boxes, data modems, and gateways for the broadband service provider, storage networking market, cable infrastructure market, industrial and automotive markets, and optical module and telecommunications infrastructure markets.

Products shipped to Asia accounted for 82% and 84% of net revenue during the three months ended March 31, 2021 and 2020, respectively, including 37% from products shipped to Hong Kong, 14% from products shipped to mainland China, and 12% from products shipped to Vietnam during the three months ended March 31, 2021 and 50% from products shipped to Hong Kong during the three months ended March 31, 2020.

Products shipped to Asia accounted for 82% and 83% of net revenue during the three months ended June 30, 2021 and 2020, respectively, including 44% from products shipped to Hong Kong and 14% from products shipped to Vietnam during the three months ended June 30, 2021 and 42% from products shipped to Hong Kong and 11% from products shipped to mainland China during the three months ended June 30, 2020.

Products shipped to Asia accounted for 82% and 83% of net revenue during the six months ended June 30, 2021 and 2020, respectively, including 40% from products shipped to Hong Kong, 11% from products shipped to mainland China, and 13% from products shipped to Vietnam during the six months ended June 30, 2021 and 46% from products shipped to Hong Kong and 10% from products shipped to mainland China during the six months ended June 30, 2020.

Although a large percentage of our products is shipped to Asia, we believe that a significant number of the systems designed by these customers and incorporating our semiconductor products are then sold outside Asia.

For example, revenue generated from sales of our products during the three months ended March 31, 2021 and 2020 related principally to sales to Asian ODMs and contract manufacturers delivering products into European and North American markets.

For example, revenue generated from sales of our products during the six months ended June 30, 2021 and 2020 related principally to sales to Asian ODMs and contract manufacturers delivering products into European and North American markets.

To date, all of our sales have been denominated in United States dollars.

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Sales to customers comprise both direct sales to customers and indirect sales through distributors.

In the three months ended March 31, 2021, our top three customers accounted for 37% of our net revenue, and our ten largest customers collectively accounted for 72% of our net revenue, of which distributor customers accounted for 39% of our net revenue.

In the three months ended June 30, 2021, our top two customers accounted for 26% of our net revenue, and our ten largest customers collectively accounted for 68% of our net revenue, of which distributor customers accounted for 27% of our net revenue.

In the six months ended June 30, 2021, our top two customers accounted for 27% of our net revenue, and our ten largest customers collectively accounted for 70% of our net revenue, of which distributor customers accounted for 28% of our net revenue.

For certain customers, we sell multiple products into disparate end user applications such as cable modems, satellite set-top boxes and broadband gateways.

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We do not have any long-term purchase commitments with any of our customers, all of whom purchase our products on a purchase order basis.

Once one of our products is incorporated

into a customer’s design, however, we believe that our product is likely to remain a component of the customer’s product for its life cycle because of the time and expense associated with redesigning the product or substituting an alternative chip.

Once one of our products is incorporated into a customer’s design, however, we believe that our product is likely to remain a component of the customer’s product for its life cycle because of the time and expense associated with redesigning the product or substituting an alternative chip.

Product life cycles in our target markets will vary by application.

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On March 11, 2020, the World Health Organization declared a global pandemic regarding COVID-19.

The COVID-19 pandemic has reached all of the countries and states in which we operate, including in California where our headquarters and central engineering team are located, as well as Massachusetts, Spain, India, Singapore, Taiwan, Canada, France, Japan, South Korea, Hong Kong, Israel, Germany, and Austria, where additional engineering, sales, and administrative personnel are located.

France, Japan, South Korea, Hong Kong, Israel, Germany, and Austria, where additional engineering, sales, and administrative personnel are located.

In many of these jurisdictions, local authorities have instituted stay-at-home or shelter-in-place orders.

To protect the health and safety of our employees, we adopted social distancing policies including suspending employee travel and implementing remote work arrangements for substantially all of our workforce worldwide.

As of March 31, 2021, some of our workforce has returned to the office at a reduced capacity adhering to local health authority guidelines and we are encouraging our employees to get COVID-19 vaccines as they become available.

As of June 30, 2021, some of our workforce has returned to the office at a reduced capacity adhering to local health authority guidelines and we are encouraging our employees to get COVID-19 vaccines as they become available.

While we experienced some negative impact to our net revenue and gross profits in the first half of 2020 due to several industry-wide dynamics related to COVID-19, including the supply constraints described above, as well as certain customer order push-out requests, since then, we have been benefiting from the work-from-home environment that is driving an increase in demand for certain of our products.

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Some chip manufacturers are estimating this supply shortage may continue into 2022.

While these chip manufacturers are working to increase capacity in the future, and we are continuing to work closely with our suppliers and customers to minimize the potential adverse impacts of the supply shortage, such shortage may have a near-term impact on our ability to meet increased demand on certain products and have a negative impact on our operating results beginning in the second quarter of 2021 which may continue into 2022.

Further, global financial markets reacted negatively to the COVID-19 pandemic’s impacts causing significant declines in the stock price and market capitalization of many companies across all industries, although some have recovered.

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However, the magnitude of such volatility on our business and its duration is uncertain and cannot be reasonably estimated at this time.

As described below, on July 31, 2020, we consummated transactions contemplated by a definitive agreement to acquire certain assets and assume certain liabilities from Intel Corporation, or Intel, related to its Home Gateway Platform Division, which we refer to as the WiFi and Broadband assets business, and on September 9, 2020, we completed our acquisition of NanoSemi, Inc., or NanoSemi, pursuant to an Agreement and Plan of Merger with NanoSemi, dated September 9, 2020 (the “Merger Agreement”).

As described below, on July 31, 2020, we consummated transactions contemplated by a definitive agreement to acquire certain assets and assume certain liabilities from Intel Corporation, or Intel, related to its Home Gateway Platform Division, which we refer to as the Wi-Fi and Broadband assets business, and on September 9, 2020, we completed our acquisition of NanoSemi, Inc., or NanoSemi, pursuant to an Agreement and Plan of Merger with NanoSemi, dated September 9, 2020 (the “Merger Agreement”).

These businesses also operate in jurisdictions that have been and continue to be materially affected by the COVID-19 pandemic.

In particular, our WiFi and Broadband assets business has major engineering, development, and other personnel in Germany, Austria, Israel, India, Singapore, Taiwan, Hong Kong, and China and NanoSemi has engineering and development personnel in Boston, Massachusetts.

In particular, our Wi-Fi and Broadband assets business has major engineering, development, and other personnel in Germany, Austria, Israel, India, Singapore, Taiwan, Hong Kong, and China and NanoSemi has engineering and development personnel in Boston, Massachusetts.

Attempting to complete the integration of an acquisition of assets and new personnel around the world has been and will continue to be substantially complicated by continuing restrictions on travel and social distancing.

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For more information, please refer to Note 3 of our unaudited consolidated financial statements.

Recent Developments

Stock Repurchase Program

On February 23, 2021, our board of directors authorized a plan to repurchase up to $100 million of our common stock over a period ending February 16, 2024.

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For more information, please refer to Note 16 of our unaudited consolidated financial statements.

Recent Developments

On June 23, 2021, the Company entered into a Credit Agreement (the “June 23, 2021 Credit Agreement”), by and among the Company, the lenders from time to time party thereto, and Wells Fargo Bank, National Association, as administrative agent and collateral agent, that provides for a senior secured term B loan facility, or the “Initial Term Loan under the June 23, 2021 Credit Agreement,” in an aggregate principal amount of $350.0 million and a senior secured revolving credit facility, or the “Revolving Facility,” in an aggregate principal amount of up to $100.0 million.

The proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement were used (i) to repay in full all outstanding indebtedness under that certain Credit Agreement dated May 12, 2017, by and among the Company, MUFG Bank Ltd., as administrative agent and MUFG Union Bank, N.A., as collateral agent and the lenders from time to time party thereto (as amended by Amendment No.

1, dated July 31, 2020 and as further amended, amended and restated, waived, supplemented or otherwise modified from time to time, the “May 12, 2017 Credit Agreement”) and (ii) to pay fees and expenses incurred in connection therewith.

The remaining proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement are available for general corporate purposes and the proceeds of the Revolving Facility may be used to finance the working capital needs and other general corporate purposes of the Company and its subsidiaries.

As of June 30, 2021, the Revolving Facility was undrawn.

In connection with the settlement of the indebtedness under the May 12, 2017 Credit Agreement, the Company recognized an aggregate loss on debt extinguishment of $5.2 million consisting of unamortized debt issuance costs and discounts.

For more information, please refer to Note 8 of our unaudited consolidated financial statements.

Critical Accounting Policies and Estimates

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For a summary of our critical accounting policies and estimates, refer to Management’s Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2020, which we filed with the Securities and Exchange Commission, or SEC, on February 11, 2021, or our Annual Report.

There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2021.

There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2021.

Recently Adopted Accounting Pronouncements

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Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

The adoption of the amendments in this update did not have a material impact on our consolidated financial position and results of operations as of and for the three months ended March 31, 2021, and is also not expected to have a material impact on our financial position and results of operations for the year ending December 31, 2021.

The adoption of the amendments in this update did not have a material impact on our consolidated financial position and results of operations as of and for the six months ended June 30, 2021, and is also not expected to have a material impact on our financial position and results of operations for the year ending December 31, 2021.

In October 2020, the FASB issued ASU No.

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The amendments in this update should be applied retrospectively and at the beginning of the period that includes the adoption date.

The adoption of the amendments in this update did not have a material impact on our financial disclosures as of and for the three months ended March 31, 2021, and is also not expected to have a material impact on our financial disclosures for the year ending December 31, 2021.

The adoption of the amendments in this update did not have a material impact on our financial disclosures as of and for the six months ended June 30, 2021, and is also not expected to have a material impact on our financial disclosures for the year ending December 31, 2021.

Results of Operations

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Restructuring charges consist of severance, lease and leasehold impairment charges, and other charges related to restructuring plans.

Loss on Extinguishment of Debt.

Loss on extinguishment of debt consists of the charge-off of remaining unamortized debt discount and issuance cost on debt we repaid early with a majority of the proceeds from a new term loan.

Interest and Other Income (Expense), Net.

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Other income (expense) generally consists of income (expense) generated from non-operating transactions.

Income Tax Provision (Benefit).

Income Tax Benefit.

We make certain estimates and judgments in determining income taxes for financial statement purposes.

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The following table sets forth our consolidated statement of operations data as a percentage of net revenue for the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Net revenue 100 % 100 % 100 % 100 %

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Income (loss) from operations 1 (35) 3 (34)

Total interest and other income (expense), net (2) (3)

Income (loss) before income taxes 3 (36)

Income tax provision (benefit) 1 (11)

Interest income — — — —

Interest expense (2) (3) (2) (4)

Loss on extinguishment of debt (3) — (1) —

Other income (expense), net — — — —

Total other income (expense), net (5) (3) (3) (3)

Loss before income taxes (4) (38) — (37)

Income tax benefit (4) (5) (1) (8)

Net income (loss) — % (33) % 1 % (29) %

Three Months Ended March 31,

2021 2020 (1)

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 $ Change % Change 2021 2020 (1)

(dollars in thousands)

$ Change % Change

(dollars in thousands) (dollars in thousands)

Broadband $ 112,765 $ 22,495 $ 90,270 401 % $ 236,955 $ 49,133 $ 187,822 382 %

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Our connectivity category includes primarily our MoCA/G.hn products and Wi-Fi and Ethernet revenues from the Wi-Fi and Broadband assets business.

Net revenue increased $147.3 million to $209.4 million for the three months ended March 31, 2021, as compared to $62.0 million for the three months ended March 31, 2020.

The increase in broadband net revenue of $97.6 million was primarily the result of contribution of gateway revenues attributable to our acquisition of the Wi-Fi and Broadband assets business on July 31, 2020 and, to a lesser extent, improvements in cable product shipments, partially offset by reductions in satellite product shipments.

Net revenue increased $140.2 million to $205.4 million for the three months ended June 30, 2021, as compared to $65.2 million for the three months ended June 30, 2020.

The increase in broadband net revenue of $90.3 million was primarily the result of the contribution of gateway revenues attributable to our acquisition of the Wi-Fi and Broadband assets business on July 31, 2020 and, to a lesser extent, improvements in cable front-end and tuner shipments.

The increase in connectivity revenue of $24.7 million was primarily driven by the contribution of Wi-Fi and ethernet revenues attributable to our Wi-Fi and Broadband assets business acquisition, further supplemented by an increase in MoCA and G.hn product shipments.

The increase in industrial and multi-market revenue of $15.0 million was related to increased shipments of component products attributable to our Wi-Fi and Broadband assets business acquisition, further aided by an increase in shipments of high performance analog products in this category.

The increase in infrastructure revenues of $10.1 million was primarily driven by an increase in wireless backhaul shipments and, to a lesser extent increased shipments of wireless access and high performance analog products in this category.

Net revenue increased $287.5 million to $414.7 million for the six months ended June 30, 2021, as compared to $127.2 million for the six months ended June 30, 2020.

The increase in broadband net revenue of $187.8 million was primarily the result of contribution of gateway revenues attributable to our acquisition of the Wi-Fi and Broadband assets business on July 31, 2020 and, to a lesser extent, improvements in cable front-end shipments.

The increase in connectivity revenue of $46.6 million was primarily driven by a partial-year contribution of Wi-Fi and ethernet revenues attributable to our Wi-Fi and Broadband assets business acquisition, further supplemented by an increase in MoCA and G.hn product shipments.

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We currently expect that revenue will fluctuate in the future, from period-to-period, based on evolving customer demand for existing products, the pace of adoption of newer products, and macroeconomic conditions.

Further, due to heightened volatility and uncertainty in customer demand resulting from the COVID-19 pandemic, we may experience increased volatility in our sales and revenues.

Further, due to heightened volatility and uncertainty in customer demand resulting from the COVID-19 pandemic, as well as uncertainty in supply from the global semiconductor chip shortage, we may experience increased volatility in our sales and revenues.

Cost of Net Revenue and Gross Profit

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 $ Change % Change 2021 2020 $ Change % Change

(dollars in thousands) (dollars in thousands)

Cost of net revenue $ 92,833 $ 32,477 $ 60,356 186 % $ 190,473 63,742 126,731 199 %

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% of net revenue 55 % 50 % 54 % 50 %

Cost of net revenue increased $66.4 million to $97.6 million for the three months ended March 31, 2021, as compared to $31.3 million for the three months ended March 31, 2020.

The increase was primarily driven by higher sales and incremental expenses, primarily driven by our acquisition of the WiFi and Broadband assets business.

Gross profit percentage improved for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, due primarily to improved absorption of amortization of intangible costs.

Cost of net revenue increased $60.4 million to $92.8 million for the three months ended June 30, 2021, as compared to $32.5 million for the three months ended June 30, 2020.

The increase was primarily driven by higher sales and incremental expenses, primarily driven by our acquisition of the Wi-Fi and Broadband assets business.

Gross profit percentage improved for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, due primarily to improved absorption of amortization of intangible costs.

Cost of net revenue increased $126.7 million to $190.5 million for the six months ended June 30, 2021, as compared to $63.7 million for the six months ended June 30, 2020.

The increase was primarily driven by higher sales and incremental expenses, primarily driven by our acquisition of the Wi-Fi and Broadband assets business.

Gross profit percentage improved for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, due primarily to improved absorption of amortization of intangible costs.

We currently expect that gross profit percentage will fluctuate in the future, from period-to-period, based on changes in product mix, average selling prices, and average manufacturing costs.

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Research and Development

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 $ Change % Change 2021 2020 $ Change % Change

(dollars in thousands) (dollars in thousands)

Research and development $ 74,416 $ 27,984 $ 46,432 166 % $ 137,582 $ 53,673 83,909 156 %

% of net revenue 36 % 43 % 33 % 42 %

Research and development expense increased $37.5 million to $63.2 million for the three months ended March 31, 2021 from $25.7 million in the three months ended March 31, 2020.

The increase was primarily due to our business acquisitions of the WiFi and Broadband assets business on July 31, 2020 and NanoSemi on September 9, 2020, which resulted in added engineering headcount, facilities, and related expenses, as well as an increase in bonuses and performance stock-based compensation expenses.

There were increases in personnel-related expense of $25.8 million, of which $6.3 million is from performance-based bonus accruals and stock-based compensation expense, outside services of $7.4 million which includes acquisition transition service costs and computer aided design and engineering fees of $6.8 million, depreciation expense of $1.7 million, occupancy expenses of $1.4 million, and prototype expense of $1.1 million.

Research and development expense increased $46.4 million to $74.4 million for the three months ended June 30, 2021 from $28.0 million in the three months ended June 30, 2020.

The increase was primarily due to our business acquisitions of the Wi-Fi and Broadband assets business on July 31, 2020 and NanoSemi on September 9, 2020, which resulted in added engineering headcount, facilities, and related expenses, as well as an increase in bonuses and performance stock-based compensation expenses.

There were increases in personnel-related expense of $29.4 million, of which $8.4 million is from performance-based bonus accruals and stock-based compensation expense, prototype expense of $5.5 million, outside services of $7.9 million which primarily includes consulting and computer aided design and engineering fees, depreciation expense of $1.7 million, and occupancy expenses of $1.4 million.

Research and development expense increased $83.9 million to $137.6 million for the six months ended June 30, 2021 from $53.7 million in the six months ended June 30, 2020.

The increase was primarily due to our 2020 business acquisitions, which resulted in added engineering headcount, facilities, and related expenses, as well as an increase in bonuses and performance stock-based compensation expenses.

There were increases in personnel-related expense of $55.2 million, of which $14.7 million is from performance-based bonus accruals and stock-based compensation expense, outside services of $15.3 million which primarily includes acquisition transition service costs, consulting and computer aided design and engineering fees, prototype expense of $6.6 million, depreciation expense of $3.3 million, and occupancy expenses of $2.7 million.

We expect our research and development expenses to increase in future years as we continue to expand our product portfolio and enhance existing products.

Selling, General and Administrative

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 $ Change % Change 2021 2020 $ Change % Change

(dollars in thousands) (dollars in thousands)

Selling, general and administrative $ 35,885 $ 27,470 $ 8,415 31 % $ 72,354 $ 52,102 $ 20,252 39 %

% of net revenue 17 % 42 % 17 % 41 %

Selling, general and administrative expense increased $11.8 million to $36.5 million for the three months ended March 31, 2021, as compared to $24.6 million for the three months ended March 31, 2020.

The increase was primarily due to our acquisitions of the WiFi and Broadband assets business on July 31, 2020 and NanoSemi on September 9, 2020, which resulted in added personnel, facilities, and related expenses as well as an increase in performance-based bonuses and stock-based compensation expenses.

There were increases in personnel expense of $7.9 million, including $3.4 million from performance-based bonus accruals and stock-based compensation expenses, outside services of $2.4 million primarily consisting of acquisition transition service costs, occupancy expenses of $0.9 million, and supplies and small tools expense of $0.5 million.

Selling, general and administrative expense increased $8.4 million to $35.9 million for the three months ended June 30, 2021, as compared to $27.5 million for the three months ended June 30, 2020.

The increase was primarily due to our 2020 business acquisitions which resulted in added personnel, facilities, and related expenses as well as an increase in performance-based bonuses and stock-based compensation expenses.

There were increases in personnel expense of $6.6 million, including $1.8 million from performance-based bonus accruals and stock-based compensation expenses, outside services of $1.8 million, occupancy expenses of $0.8 million, and depreciation expense of $0.7 million.

These increases were partially offset by a decrease in professional fees of $1.9 million related to 2020 acquisitions.

Selling, general and administrative expense increased $20.3 million to $72.4 million for the six months ended June 30, 2021, as compared to $52.1 million for the six months ended June 30, 2020.

The increase was primarily due to our 2020 business acquisitions, which resulted in added personnel, facilities, and related expenses as well as an increase in performance-based bonuses and stock-based compensation expenses.

There were increases in personnel expense of $14.5 million, including $5.3 million from performance-based bonus accruals and stock-based compensation expenses, outside services of $3.6 million primarily consisting of acquisition transition service costs and consulting fees, occupancy expenses of $1.7 million, depreciation expense of $0.8 million, supplies and small tools expense of $0.7 million and amortization of intangibles of $0.6 million.

These increases were partially offset by a decrease in professional fees of $1.8 million related to 2020 acquisitions.

We expect selling, general and administrative expenses to increase in future years as we grow our sales and marketing organization to expand into existing and new markets.

Impairment Losses

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Impairment losses $ — $ 86 $ (86) (100) %

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 $ Change % Change 2021 2020 $ Change % Change

(dollars in thousands) (dollars in thousands)

Impairment losses $ — $ — $ — N/A $ — $ 86 $(86) (100)%

% of net revenue — % — % — % — %

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Restructuring Charges

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 $ Change % Change 2021 2020 $ Change % Change

(dollars in thousands) (dollars in thousands)

Restructuring charges $ 38 $ 64 $ (26) (41) % $ 2,204 $ 553 $1,651 299%

% of net revenue — % — % 1 % — %

Restructuring charges increased $1.7 million to $2.2 million for the three months ended March 31, 2021, compared to $0.5 million for the three months ended March 31, 2020.

Restructuring charges for the three months ended March 31, 2021 primarily consisted of $1.3 million in employee severance-related charges and $0.6 million of lease-related charges, which primarily consisted of impairment of leased right-of-use assets and leasehold improvements.

Restructuring charges in the three months ended March 31, 2020 primarily consisted of lease restructuring charges of $0.3 million.

Restructuring charges decreased $0.03 million to $0.04 million for the three months ended June 30, 2021, compared to $0.06 million for the three months ended June 30, 2020.

Restructuring charges for the three months ended June 30, 2021 primarily consisted of $0.02 million in employee severance-related charges.

Restructuring charges in the three months ended June 30, 2020 primarily consisted of employee separation expenses of approximately $0.05 million.

Restructuring charges increased $1.7 million to $2.2 million for the six months ended June 30, 2021, compared to $0.6 million for the six months ended June 30, 2020.

Restructuring charges for the six months ended June 30, 2021 primarily consisted of $1.3 million in employee severance-related charges and $0.6 million of lease-related charges, which primarily consisted of impairment of leased right-of-use assets and leasehold improvements.

Restructuring charges in the six months ended June 30, 2020 primarily consisted of lease restructuring charges of $0.3 million related to exiting certain redundant facilities and other charges of $0.2 million.

Loss on Extinguishment of Debt

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 $ Change % Change 2021 2020 $ Change % Change

(dollars in thousands) (dollars in thousands)

Loss on extinguishment of debt $ (5,221) $ — $ (5,221) N/A $ (5,221) $ — $(5,221) N/A

% of net revenue (3) % — % (1) % — %

Loss on extinguishment of debt in the 2021 periods consists of the charge-off of remaining unamortized debt discount and issuance costs on debt we repaid early with proceeds from a new term loan in June 2021.

Interest and Other Income (Expense )

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 $ Change % Change 2021 2020 $ Change % Change

(dollars in thousands) (dollars in thousands)

Interest and other income (expense), net $ (4,260) $ (2,233) $ (2,027) 91 % $ (8,570) $ (4,304) $ (4,266) 99 %

% of net revenue (2) % (3) % (2) % (3) %

Interest and other income (expense), net changed by $2.2 million from a net expense of $2.1 million in the three months ended March 31, 2020 to a net expense of $4.3 million for the three months ended March 31, 2021.

The change in interest and other income (expense), net was primarily due to the impact of a $1.7 million increase in interest expense on outstanding debt, mostly related to an incremental term loan debt of $137.8 million, which was primarily used to fund our acquisition of the WiFi and Broadband assets business in July 2020.

The remaining change included a $0.3 million change in other income (expense), net, from income of $0.2 million in the 2020 period to expense of $0.1 million primarily related to foreign currency fluctuations and a change in interest income from $0.2 million in the 2020 period to nil.

Income Tax Provision (Benefit)

Three Months Ended March 31,

2021 2020 $ Change % Change

(dollars in thousands)

Income tax provision (benefit) $ 1,806 $ (6,736) $ 8,542 (127) %

The income tax provision for the three months ended March 31, 2021 was $1.8 million compared to an income tax benefit of $6.7 million for the three months ended March 31, 2020.

The income tax provision for the three months ended March 31, 2021 and 2020 each primarily related to the mix of pre-tax income among jurisdictions, excess tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10.

Interest and other income (expense), net changed by $2.0 million from a net expense of $2.2 million in the three months ended June 30, 2020 to a net expense of $4.3 million for the three months ended June 30, 2021.

The change in interest and other income (expense), net was primarily due to the impact of a $1.6 million increase in interest expense on outstanding debt, mostly related to incremental term loan debt under the May 12, 2017 Credit Agreement which was primarily used to fund our

acquisition of the Wi-Fi and Broadband assets business in July 2020.

The remaining change included a $0.5 million change in other income (expense), net, from income of $0.08 million in the 2020 period to expense of $0.5 million primarily related to foreign currency fluctuations.

Interest and other income (expense), net changed by $4.3 million from a net expense of $4.3 million in the six months ended June 30, 2020 to a net expense of $8.6 million for the six months ended June 30, 2021.

The change in interest and other income (expense), net was primarily due to the impact of a $3.3 million increase in interest expense on outstanding debt, mostly related to an incremental term loan debt under the credit agreement dated May 12, 2017, as amended, which was primarily used to fund our acquisition of the Wi-Fi and Broadband assets business in July 2020.

The remaining change included a $0.7 million change in other income (expense), net, from income of $0.1 million in the 2020 period to expense of $0.6 million primarily related to foreign currency fluctuations.

Income Tax Benefit

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 $ Change % Change 2021 2020 $ Change % Change

(dollars in thousands) (dollars in thousands)

Income tax benefit $ (8,010) $ (3,201) $ (4,809) 150 % $ (6,204) $ (9,937) $ 3,733 (38) %

The income tax benefit for the three months ended June 30, 2021 was $8.0 million compared to an income tax benefit of $3.2 million for the three months ended June 30, 2020.

The income tax benefit for the six months ended June 30, 2021 was $6.2 million compared to an income tax benefit of $9.9 million for the six months ended June 30, 2020.

The income tax benefit for the six months ended June 30, 2021 and 2020 each primarily related to the mix of pre-tax income among jurisdictions, excess tax benefits related to stock-based compensation, and release of uncertain tax positions under ASC 740-10.

We continue to maintain a valuation allowance to offset state and certain federal and foreign deferred tax assets, as realization of such assets does not meet the more-likely-than-not threshold required under accounting guidelines.

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Liquidity and Capital Resources

As of March 31, 2021, we had cash and cash equivalents of $148.1 million, restricted cash of $1.1 million and net accounts receivable of $87.5 million.

Additionally, as of March 31, 2021, our working capital was $147.3 million.

As of June 30, 2021, we had cash and cash equivalents of $130.3 million, restricted cash of $1.1 million and net accounts receivable of $135.3 million.

Additionally, as of June 30, 2021, our working capital was $166.3 million.

Our primary uses of cash are to fund operating expenses and purchases of inventory, property and equipment, and from time to time, the acquisition of businesses.

We also use cash to pay down outstanding debt, repurchase our common stock under our stock repurchase plan, and from time to time, make investments.

In July 2020, we funded our $150.0 million acquisition of the Wi-Fi and Broadband assets business with a portion of the net proceeds of our $175.0 million incremental term loan.

In September 2020, we paid $10 million in cash to acquire NanoSemi and as of March 31, 2021, the NanoSemi stockholders have received $20 million of $35 million in deferred cash payments payable in 2021.

Commencing on July 31, 2020, the incremental term loan of $175.0 million amortizes in quarterly installments of principal equal to (i) 1.25% of the original aggregate principal amount of the incremental term loan on the last day of each of the first through fourth full fiscal quarters of the Company after July 31, 2020, (ii) 2.50% of the original aggregate principal amount of the Incremental Term Loan on the last day of each of the fifth through eighth full fiscal quarters of the Company after July 31, 2020, and (iii) 3.75% of the original aggregate principal amount of the incremental term loan on the last day of each of the ninth through the eleventh full fiscal quarters of the Company after July 31, 2020.

The incremental term loan has a term of three years and will mature on July 31, 2023, at which time all outstanding principal and accrued and unpaid interest on the incremental term loan is due.

The Company also has an existing initial term loan with outstanding principal of $212.0 million due at maturity on May 12, 2024.

In June 2021, the Company used a portion of funds from a new senior secured term B loan facility or the "Initial Term Loan under the June 23, 2021 Credit Agreement," in an aggregate principal amount of $350.0 million to repay in full all outstanding indebtedness under the May 12, 2017 Credit Agreement and related fees and expenses incurred.

The remaining proceeds of the Initial Term Loan under the June 23, 2021 Credit Agreement are available for general corporate purposes.

The Company also entered into a senior secured revolving credit facility, in an aggregate principal amount of up to $100.0 million which remained undrawn as of June 30, 2021.

The proceeds of the revolving facility may be used to finance the working capital needs and other general corporate purposes of the Company and its subsidiaries.

In July 2020, we funded our $150.0 million acquisition of the Wi-Fi and Broadband assets business with a portion of the net proceeds of an $175.0 million incremental term loan, which we repaid in full in June 2021.

In September 2020, we paid $10 million in cash to acquire NanoSemi and as of June 30, 2021, the NanoSemi stockholders have received $27.5 million of $35 million in deferred cash payments payable in 2021.

Commencing on September 30, 2021, the Initial Term Loan under the June 23, 2021 Credit Agreement will amortize in equal quarterly installments equal to 0.25% of the original principal amount of the Initial Term Loan under the June 23, 2021 Credit Agreement, with the balance payable on June 23, 2028.

Heightened volatility, global semiconductor chip shortages, and uncertainty in customer demand and the worldwide economy in general continues to impact business and financial markets as a result of the COVID-19 pandemic, and we may experience decreased sales and revenues in the near future.

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Cash proceeds from debt and issuance of common stock and cash used to pay down outstanding debt or repurchase common stock is included in financing activities in our consolidated statements of cash flows.

Our primary sources of cash are cash receipts on accounts receivable from our shipment of products to distributors and direct customers, and from billings made on our behalf to customers for products sold by Intel under a transition services agreement.

Our primary sources of cash are cash receipts on accounts receivable from our shipment of products to distributors and direct customers, and through January 2021, from billings made on our behalf to customers for products sold by Intel under a transition services agreement.

Aside from the amounts billed to our customers, net cash collections of accounts receivable are impacted by the efficiency of our cash collections process, which can vary from period to period depending on the payment cycles of our major distributor customers, and relative linearity of shipments period-to-period.

Our credit agreement, as amended, under which we entered into a term loan to partially fund our acquisition of Exar, permits us to request incremental loans in an aggregate principal amount not to exceed the sum of $160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests.

We incurred an incremental loan of $175.0 million under this credit agreement with new initial lenders and used a portion of the net proceeds to fund our $150.0 million acquisition of the WiFi and Broadband assets business.

The June 23, 2021 Credit Agreement, under which we entered into a senior secured term B loan facility and a revolving credit facility, permits us to request incremental loans in an aggregate principal amount not to exceed the sum of an amount equal to the greater of (x) $175.0 million and (y) 100% of consolidated EBITDA, plus the amount of certain voluntary prepayments, plus an unlimited amount that is subject to pro forma compliance with certain first lien net leverage ratio, secured net leverage ratio and total net leverage ratio tests.

Following is a summary of our working capital, cash and cash equivalents, and restricted cash for the periods indicated:

March 31, December 31,

June 30, December 31,

(in thousands)

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Following is a summary of our cash flows provided by (used in) operating activities, investing activities and financing activities for the periods indicated:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

5 unchanged sentences

Cash Flows from Operating Activities

Net cash provided by operating activities was $40.3 million for the three months ended March 31, 2021.

Net cash provided by operating activities consisted of positive impact of net income of $3.8 million and non-cash items of $37.7 million, offset by the negative impact of $0.6 million in changes in operating assets and liabilities and excess tax benefits totaling $1.3 million.

Non-cash items included in net income for the three months ended March 31, 2021 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $22.3 million and stock-based compensation of $13.0 million.

Net cash provided by operating activities was $6.6 million for the three months ended March 31, 2020.

Net cash provided by operating activities consisted of positive cash flow from $17.8 million in non-cash items and $4.2 million in changes in operating assets and liabilities, partially offset by net loss of $15.5 million and excess tax benefits from stock-based compensation of $0.1 million.

Non-cash items included in net loss for the three months ended March 31, 2020 primarily included depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $16.7 million and stock-based compensation of $6.8 million.

Net cash provided by operating activities was $68.1 million for the six months ended June 30, 2021.

Net cash provided by operating activities consisted of positive impact of net income of $4.5 million and non-cash items of $80.0 million, offset by the negative impact of $6.3 million in changes in operating assets and liabilities and excess tax benefits and deferred income taxes totaling $10.1 million.

Non-cash items included in net income for the six months ended June 30, 2021 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $44.3 million, stock-based compensation of $26.9 million, loss on extinguishment of debt of $5.2 million, and amortization of debt issuance costs and discounts of $2.1 million.

Net cash provided by operating activities was $15.9 million for the six months ended June 30, 2020.

Net cash provided by operating activities consisted of positive cash flow from $53.1 million in non-cash items and $9.6 million in changes in operating assets and liabilities, partially offset by net loss of $37.3 million and deferred income taxes and excess tax benefits totaling $9.5 million.

Non-cash items included in net loss for the six months ended June 30, 2020 primarily consisted of depreciation and amortization of property, equipment, acquired intangible assets and leased right-of-use assets of $33.3 million and stock-based compensation of $18.9 million.

Cash Flows from Investing Activities

Net cash used in investing activities was $12.3 million for the three months ended March 31, 2021 and consisted primarily of $6.2 million in purchases of property and equipment, $5.0 million in purchases of long-term investments (Note 7), and $1.1 million in purchases of intangible assets.

Net cash used in investing activities was $1.0 million for the three months ended March 31, 2020 and consisted entirely of purchases of property and equipment.

Net cash used in investing activities was $50.9 million for the six months ended June 30, 2021 and consisted of $27.5 million in payments of purchase price that were previously deferred from our 2020 acquisition of NanoSemi, $17.3 million in purchases of property and equipment, $5.0 million in purchases of long-term investments, and $1.1 million in purchases of intangible assets.

Net cash used in investing activities was $4.9 million for the six months ended June 30, 2020 and consisted primarily of purchases of property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities was $28.8 million for the three months ended March 31, 2021.

Net cash used in financing activities consisted primarily of $20.0 million in repayments of debt, $7.4 million in minimum tax withholding paid on behalf of employees for restricted stock units, and $2.7 million in common stock repurchases, offset by cash inflows from net proceeds from issuance of common stock upon exercise of stock options of $1.3 million.

Net cash provided by financing activities was $0.01 million for the three months ended March 31, 2020.

Net cash provided by financing activities consisted primarily of cash inflows from net proceeds from issuance of common stock upon exercise of stock options, partially offset by minimum tax withholding paid on behalf of employees for restricted stock units.

We believe that our $148.1 million of cash and cash equivalents at March 31, 2021 will be sufficient to fund our projected operating requirements for at least the next twelve months.

As of March 31, 2021, our indebtedness totaled $349.8 million, which consists of $212.0 million outstanding principal under an initial term loan and $137.8 million under an incremental term loan.

We have repaid $250.2 million of debt through March 31, 2021.

The credit agreement, as amended, permits the Company to request incremental loans in an aggregate principal amount not to exceed the sum of $160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests.

Incremental loans are subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the credit agreement or new lenders.

The initial term loan facility has a seven-year term expiring in May 2024 and bears interest at either an Adjusted LIBOR or an Adjusted Base Rate, at our option, plus a fixed applicable margin.

The outstanding principal on the initial term loan is due at maturity on May 12, 2024.

The incremental term loan facility has a three-year term expiring in July 2023 and bears interest, at our option, at either an Adjusted LIBOR plus a fixed applicable margin of 4.25% per annum or an Adjusted Base Rate plus a fixed applicable margin of 3.25% per annum.

The incremental term loan of $175.0 million amortizes in quarterly installments of principal equal to (i) 1.25% of the original aggregate principal amount of the incremental term loan on the last day of each of the first through fourth full fiscal quarters of the Company following the date of the incremental term loan, (ii) 2.50% of the original aggregate principal amount of the incremental term loan on the last day of each of the fifth through eighth full fiscal quarters of the Company, and (iii) 3.75% of the original aggregate principal amount of the incremental term loan on the last day of each of the ninth through the eleventh full fiscal quarters of the Company.

Net cash used in financing activities was $35.1 million for the six months ended June 30, 2021.

Net cash used in financing activities consisted primarily of $369.8 million in repayments of debt, $10.1 million in minimum tax withholding paid on behalf of employees for restricted stock units, $7.1 million in common stock repurchases, $4.1 million in debt issuance costs, partially offset by cash inflows from net proceeds from the issuance of debt of $350.0 million and from issuance of common stock upon exercise of stock options of $6.1 million.

Net cash provided by financing activities was $3.1 million for the six months ended June 30, 2020.

Net cash provided by financing activities consisted primarily of cash inflows from net proceeds from issuance of common stock upon exercise of stock options of $4.6 million, partially offset by minimum tax withholding paid on behalf of employees for restricted stock units of $1.5 million.

We believe that our $130.3 million of cash and cash equivalents at June 30, 2021 will be sufficient to fund our projected operating requirements for at least the next twelve months.

As of June 30, 2021, our indebtedness totaled $350.0 million, which consists of outstanding principal under the Initial Term Loan under the June 23, 2021 Credit Agreement.

The June 23, 2021 Credit Agreement also provides the Company with the Revolving Facility in an aggregate principal amount of up to $100.0 million.

The Initial Term Loan under the June 23, 2021 Credit Agreement has a seven-year term expiring in June 2028 and bears interest, at the Company’s option, at a per annum rate equal to either (i) a base rate equal to the highest of (x) the federal funds rate, plus 0.50%, (y) the prime rate then in effect and (z) an adjusted LIBOR rate determined on the basis of a one-month interest period plus 1.00%, in each case, plus an applicable margin of 1.25% or (ii) an adjusted LIBOR rate, subject to a floor of 0.50%, plus an applicable margin of 2.25%.

Loans under the Revolving Facility initially bear interest, at a per annum rate equal to either (i) a base rate (as calculated above) plus an applicable margin of 0.00%, or (ii) an adjusted LIBOR rate (as calculated above) plus an applicable margin of 1.00%.

Following delivery of financial statements for the Company’s fiscal quarter ending June 30, 2021, the applicable margin for loans under the Revolving Facility will range from 0.00% to 0.75% in the case of base rate loans and 1.00% to 1.75% in the care of LIBOR rate loans, in each case, depending on the Company’s secured net leverage ratio as of the most recently ended fiscal quarter.

The Company is required to pay commitment fees ranging from 0.175% to 0.25% per annum on the daily undrawn commitments under the Revolving Facility, depending on the Company’s secured net leverage ratio as of the most recently ended fiscal quarter.

Commencing on September 30, 2021, the Initial Term Loan under the June 23, 2021 Credit Agreement will amortize in equal quarterly installments equal to 0.25% of the original principal amount, with the balance payable at maturity on June 23, 2028.

The June 23, 2021 Credit Agreement contains customary provisions specifying alternative interest rate calculations to be employed at such time as LIBOR ceases to be available as a benchmark for establishing the interest rate on floating interest rate borrowings.

Our cash and cash equivalents in recent years have been favorably affected by our implementation of an equity-based bonus program for our employees, including executives.

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As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, or SPEs, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of March 31, 2021, we were not involved in any unconsolidated SPE transactions.

As of June 30, 2021, we were not involved in any unconsolidated SPE transactions.

Contractual Obligations

As of March 31, 2021, future minimum payments under long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations were as follows:

As of June 30, 2021, future minimum payments under long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations were as follows:

Total Less than 1 year 1-3 years 3-5 years More than 5 years

6 unchanged sentences

Other obligations consist of contractual payments due for software licenses.

Our consolidated balance sheet at March 31, 2021 included $5.6 million in other long-term liabilities for uncertain tax positions, some of which may result in cash payment.

Our consolidated balance sheet at June 30, 2021 included $5.7 million in other long-term liabilities for uncertain tax positions, some of which may result in cash payment.

The future payments related to uncertain tax positions recorded as other long-term liabilities have not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement with the taxing authorities.

Our contractual obligations including long-term debt, leases, inventory purchase obligations and other obligations, increased by $49.9 million to $572.1 million as of March 31, 2021, from $522.2 million as of December 31, 2020.

Our contractual obligations including long-term debt, leases, inventory purchase obligations and other obligations, increased by $56.0 million to $578.2 million as of June 30, 2021, from $522.2 million as of December 31, 2020.

The increase was primarily due to increased orders of inventory placed with our vendors and with Intel under the transition services agreement during the period.

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