What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-24 compared with 2024-04-24 · 146 added, 103 removed, 225 unchanged (53% of the section changed)

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In addition, we generate revenue from certain intellectual property sale agreements.

In the three months ended March 31, 2024, net revenue was $95.3 million, which was derived in part from sales of RF receivers and RF receiver SOC and connectivity solutions and intellectual property 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.

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

our ability to expand our target addressable markets by developing new and innovative products;

In the six months ended June 30, 2024, net revenue was $187.3 million, which was derived in part from sales of RF receivers and RF receiver SOC and connectivity solutions and intellectual property 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.

Our ability to achieve revenue growth in the future will depend, among other factors, on our ability to improve revenue in key markets such as the broadband market which has experienced slower than expected recovery;

our ability to further penetrate existing markets;

our ability to expand our target addressable markets by developing new and innovative products such as researching, developing and designing capabilities for new solutions in advanced semiconductor process nodes such as 16nm and 5nm and beyond, and addressing challenges of capturing and processing high quality broadband communications and high-speed optical interconnect signals;

changes in government trade policies;

changes in export control regulations;

our ability to carry on licensed activities with entities on the Entity List, which have been paused, delayed or halted by the U.S.

Department of Commerce Bureau of Industry and Security, or BIS at certain times;

and our ability to obtain design wins with device manufacturers, in particular manufacturers of 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 59% and 77% of net revenue during the three months ended March 31, 2024 and 2023, respectively, including 28% from products shipped to Hong Kong during the three months ended March 31, 2024 and 31% from products shipped to Hong Kong and 16% from products shipped to mainland China during three months ended March 31, 2023.

Products shipped to Asia accounted for 68% and 74% of net revenue during the six months ended June 30, 2024 and 2023, respectively, including 31% from products shipped to Hong Kong during the six months ended June 30, 2024 and 31% from products shipped to Hong Kong and 14% from products shipped to mainland China during three months ended June 30, 2023.

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, 2024 and 2023 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, 2024 and 2023 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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A significant portion of our net revenue has historically been generated by a limited number of customers through both sales of our products, and consideration under intellectual property sale agreements.

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A significant portion of our net revenue has historically been generated by a limited number of customers through sales of our products, as well as consideration under intellectual property sale agreements.

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

In the three months ended March 31, 2024, two customers accounted for 36% of our net revenue, and our ten largest customers collectively accounted for 75% of our net revenue, of which distributor customers accounted for 19% of our net revenue.

In the three months ended June 30, 2024, one customer accounted for 15% of our net revenue, and our ten largest customers collectively accounted for 62% of our net revenue, of which distributor customers accounted for 19% of our net revenue.

In the six months ended June 30, 2024, two customers accounted for 22% of our net revenue, and our ten largest customers collectively accounted for 65% of our net revenue, of which distributor customers accounted for 21% of our net revenue.

For certain customers, we sell multiple products into disparate end user applications such as PON outdoor units, or PON ODUs, Wi-Fi routers, broadband gateways, and cable modems.

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Impact of Global Economic Uncertainty and Inventory Build

Inflation and uncertainty in customer demand and the worldwide economy has continued, and we could experience continued decline in our sales and revenues.

In particular, we believe an economic slowdown and inventory oversupply in the channel could continue to add to volatility in managing the business.

In addition, inventory oversupply could potentially lead to more inventory write-downs, including charges for any excess or obsolete inventory which could negatively impact our gross margins.

Inflation and uncertainty in customer demand and the worldwide economy has continued, and we could experience continued volatility in our sales and revenues.

Inventory oversupply could potentially lead to more inventory write-downs, including charges for any excess or obsolete inventory which could negatively impact our gross margins.

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

As supplier lead times continue to stabilize, we have seen and expect to continue to see a more normalized demand-planning horizon.

While we expect inventory to remain elevated in the near term, we expect channel inventory will continue to decline thereafter.

Terminated Silicon Motion Merger

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See Part II, Item 1 (Legal Proceedings) of this report for more information on legal proceedings related to the termination of the Merger Agreement.

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The second amended and restated commitment letter dated October 24, 2022 with Wells Fargo Bank, N.A., or Wells Fargo Bank, and other lenders, and related financing commitments for the previously pending (now terminated) merger were also terminated upon termination of the Merger Agreement.

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During the year ended December 31, 2023, we entered into two plans of restructuring to reduce our workforce, or the 2023 Workforce Reductions.

The Workforce Reductions were intended to align our operational needs with the changes in macroeconomic conditions and the demand environment while continuing to support the long-term business strategy by reducing our operating expenses.

We are initiating a reduction in our workforce in July 2024, or the 2024 Workforce Reduction, which together with the 2023 Workforce Reductions are referred to collectively as the Workforce Reductions.

The Workforce Reductions are intended to align our operational needs with the changes in macroeconomic conditions and the demand environment while continuing to support the long-term business strategy by reducing our operating expenses.

As a result of the 2023 Workforce Reductions, in the year ended December 31, 2023, we incurred $19.8 million in restructuring costs primarily related to severance costs and related expenses.

During the three months ended March 31, 2024, we completed notification to the remaining affected employees of the Workforce Reductions, and incurred $22.6 million in restructuring costs, or a cumulative total of $42.4 million.

Restructuring costs in the three months ended March 31, 2024 included $19.9 million in severance costs and related expenses, substantially all of which pertained to statutory severance benefits in the jurisdictions in which the terminated employees were employed, and $2.7 million in non-cash charges related to exiting facilities and writing off of assets.

As of March 31, 2024, estimated restructuring costs remaining to be incurred for the restructuring plans pertain to write off of certain licenses and exiting of leased office space and are anticipated to occur in the remaining periods of 2024.

The remaining restructuring costs are not expected to be material.

During the six months ended June 30, 2024, we completed notification to the remaining affected employees of the 2023 Workforce Reductions, and incurred $23.5 million in restructuring costs, or a cumulative total of $43.3 million.

Restructuring costs in the six months ended June 30, 2024 included $19.8 million in severance costs and related expenses, substantially all of which pertained to statutory severance benefits in the jurisdictions in which the terminated employees were employed, and $3.7 million in non-cash charges related to exiting facilities and writing off of assets.

As of June 30, 2024, we do not expect to incur a material amount of additional restructuring costs pertaining to the 2023 Workforce Reductions, and we estimate we will incur approximately $15 million to $20 million in cash severance and related costs pertaining to the 2024 Workforce Reduction.

We expect to complete notifications to employees regarding the 2024 Workforce Reduction by the end of 2024.

The estimate of costs that we expect to incur, and the timing thereof, are subject to a number of assumptions and actual results may differ.

We may also incur other charges or cash expenditures not currently contemplated due to events that may occur as a result of, or associated with, the Workforce Reductions.

Recent Developments

Inducement Equity Incentive Plan for New Employees

On May 22, 2024, the Board of Directors adopted the Inducement Plan pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules, and, subject to the adjustment provisions of the Inducement Plan, reserved 4,000,000 shares of the Company’s common stock for issuance under equity awards granted under the Inducement Plan.

The Inducement Plan provides for the grant of equity-based awards, including non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares, and its terms are substantially similar to the 2010 Equity Incentive Plan, including with respect to treatment of equity awards in the event of a merger or “change in control” as defined under the Inducement Plan, but with such other terms and conditions intended to comply with the Nasdaq inducement award exception.

Awards under the Inducement Plan may only be made to individuals not previously employees or non-employee directors of the Company as an inducement material to the individuals’ entry into employment with the Company.

Critical Accounting Policies and Estimates

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Accordingly, those are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.

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, 2023, which we filed with the Securities and Exchange Commission, or SEC, on January 31, 2024, or our Annual Report.

There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2024.

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Commission, or SEC, on January 31, 2024, or our Annual Report.

There have been no material changes to our critical accounting policies and estimates during the six months ended June 30, 2024.

Recently Issued Accounting Pronouncements

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A significant portion of our sales are to distributors, who then resell our products.

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Cost of Net Revenue.

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These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expenses for tax and financial statement purposes and the realizability of assets in future years.

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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,

2024 2023 2024 2023

Net revenue 100 % 100 % 100 % 100 %

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Net income (loss) (43) % (2) % (60) % 1 %

Three Months Ended March 31,

2024 2023 $ Change % Change

(dollars in thousands)

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

2024 2023 $ Change % Change 2024 2023 $ Change % Change

(dollars in thousands) (dollars in thousands)

Broadband $ 21,827 $ 53,549 $ (31,722) (59) % $ 54,882 $ 135,230 $ (80,348) (59) %

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Total net revenue $ 91,990 $ 183,938 $ (91,948) (50 %) $ 187,259 $ 432,380 $ (245,121) (57) %

Net revenue decreased $153.2 million to $95.3 million for the three months ended March 31, 2024, as compared to $248.4 million for the three months ended March 31, 2023, primarily as a result of macroeconomic conditions impacting customer demand, including excess inventory in the channel built up following the supply shortages in 2022.

Net revenue decreased $91.9 million to $92.0 million for the three months ended June 30, 2024, as compared to $183.9 million for the three months ended June 30, 2023, primarily as a result of macroeconomic conditions impacting customer demand, including excess inventory in the channel built up following the supply shortages in 2022.

The decrease in broadband net revenue of $31.7 million was driven by decreases in the volume of broadband SOC shipments in this category.

The decrease in connectivity net revenue of $24.7 million was driven by decreased volume of shipments of certain products associated with residential broadband market decline.

The decrease in net infrastructure revenues of $17.5 million was driven by a decrease in the volume of wireless backhaul product shipments.

The decrease in industrial and multi-market net revenue of $18.1 million was driven by decreased volume of shipments of component and high-performance analog products.

Price changes did not have a material impact to revenues period over period.

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Net revenue decreased $245.1 million to $187.3 million for the six months ended June 30, 2024, as compared to $432.4 million for the six months ended June 30, 2023, primarily as a result of macroeconomic conditions impacting customer demand, including excess inventory in the channel built up following the supply shortages in 2022.

The decrease in broadband net revenue of $80.3 million was driven by decreases in the volume of broadband SOC shipments in this category, partially offset by revenue from certain intellectual property sale agreements.

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The decrease in net infrastructure revenues of $31.2 million was driven by a decrease in the volume of wireless backhaul product shipments, partially offset by revenue from certain intellectual property sale agreements.

The decrease in industrial and multi-market net revenue of $34.3 million was driven by decreased volume of shipments of high-performance analog and component products.

The decrease in industrial and multi-market net revenue of $52.4 million was driven by decreased volume of shipments of component and high-performance analog products.

Price changes did not have a material impact to revenues period over period.

We currently expect that revenue will fluctuate in the future, from period-to-period, consistent with the cyclical nature of our industry.

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Cost of Net Revenue and Gross Profit

Three Months Ended March 31,

2024 2023 $ Change % Change

(dollars in thousands)

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

2024 2023 $ Change % Change 2024 2023 $ Change % Change

(dollars in thousands) (dollars in thousands)

Cost of net revenue $ 41,804 $ 81,065 $ (39,261) (48) % $ 87,805 $ 189,200 $ (101,395) (54) %

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% of net revenue 55 % 56 % 53 % 56 %

Cost of net revenue decreased $62.1 million to $46.0 million for the three months ended March 31, 2024, as compared to $108.1 million for the three months ended March 31, 2023.

The decrease was driven by a decreased volume of shipments as a result of macroeconomic conditions impacting customer demand for our products as described above under “Net Revenue.” Gross profit percentage declined for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to reduced absorption of intangible amortization and fixed costs.

Cost of net revenue decreased $39.3 million to $41.8 million for the three months ended June 30, 2024, as compared to $81.1 million for the three months ended June 30, 2023.

The decrease was driven by a decreased volume of shipments as a result of macroeconomic conditions impacting customer demand for our products as described above under “Net Revenue.” Gross profit percentage declined for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, due to reduced absorption of intangible amortization and fixed costs.

Cost of net revenue decreased $101.4 million to $87.8 million for the six months ended June 30, 2024, as compared to $189.2 million for the six months ended June 30, 2023.

The decrease was driven by a decreased volume of shipments as a result of macroeconomic conditions impacting customer demand for our products as described above under “Net Revenue.” Gross profit percentage declined for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, due to reduced absorption of intangible amortization and fixed 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.

Research and Development

Three Months Ended March 31,

2024 2023 $ Change % Change

(dollars in thousands)

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

2024 2023 $ Change % Change 2024 2023 $ Change % Change

(dollars in thousands) (dollars in thousands)

Research and development $ 56,541 $ 70,657 $ (14,116) (20) % $ 121,307 $ 137,948 $ (16,641) (12) %

% of net revenue 61 % 38 % 65 % 32 %

Research and development expense decreased $2.5 million to $64.8 million for the three months ended March 31, 2024, as compared to $67.3 million for the three months ended March 31, 2023.

The decrease was driven by decreases in payroll and benefits expense of $6.0 million, CAD design tools expense of $2.1 million, outside services of $1.5 million, stock based compensation of $1.0 million, and depreciation expense of $0.7 million.

These decreases were partially offset by a decrease in income from governmental R&D grants and joint R&D projects offsetting our R&D expense of $7.9 million, and increases in bonuses of $1.3 million.

The decrease in payroll and benefits, outside services, and stock-based compensation are attributable to the Workforce Reductions and cost reduction measures.

The decrease in CAD design tool and consulting expenses are due to timing of project completion.

Research and development expense decreased $14.1 million to $56.5 million for the three months ended June 30, 2024, as compared to $70.7 million for the three months ended June 30, 2023.

The decrease was driven by decreases in payroll and benefits expense of $4.1 million, CAD design tools expense of $2.2 million, stock based compensation of $2.1 million, prototype expense of $2.0 million, bonuses of $1.5 million, consulting expense of $0.8 million and depreciation expense of $0.7 million.

The decrease was partially offset by an increase in income from governmental R&D grants of $0.5 million offsetting our R&D expense.

The decrease in payroll and benefits, bonuses, outside services, and stock-based compensation are attributable to the 2023 Workforce Reductions, and cost reduction measures.

The decrease in CAD design tool, prototype, and consulting expenses are due to timing of project completion.

The decrease in depreciation expense is from acquired assets

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becoming fully amortized as they reached the end of their useful lives.

The increase in governmental R&D grants income was related to new grants received this year.

Research and development expense decreased $16.6 million to $121.3 million for the six months ended June 30, 2024, as compared to $137.9 million for the six months ended June 30, 2023.

The decrease was driven by decreases in payroll and benefits expense of $10.1 million, CAD design tools expense of $4.2 million, stock based compensation of $3.2 million, consulting expense of $2.1 million, prototype expense of $1.6 million, and depreciation expense of $1.5 million.

These decreases were partially offset by the impact of lower governmental R&D grant income of $7.4 million offset against R&D expense.

The decrease in payroll and benefits expense and stock-based compensation are attributable to the 2023 Workforce Reductions and cost reduction measures.

The decrease in CAD design tool, consulting and prototype expenses are due to timing of project completion.

The decrease in depreciation expense is from acquired assets becoming fully amortized as they reached the end of their useful lives.

The amount of income from governmental R&D grants and joint R&D projects varies from period to period depending on demand for such projects and availability of governmental R&D programs.

The increase in bonus expense is due to improvement in year-to-date achievement against our annual operating plan relative to the prior year.

The decrease in R&D grant income is due to timing of governmental R&D grants and termination of certain programs during the first quarter of 2024 as a result of the 2023 Workforce Reductions.

The amount of income from governmental R&D grants also varies from period to period depending on availability of governmental R&D programs.

We are closely managing our research and development expenses to meet evolving demand;

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Selling, General and Administrative

Three Months Ended March 31,

2024 2023 $ Change % Change

(dollars in thousands)

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

2024 2023 $ Change % Change 2024 2023 $ Change % Change

(dollars in thousands) (dollars in thousands)

Selling, general and administrative $ 33,600 $ 33,717 $ (117) — % $ 70,088 $ 72,370 $ (2,282) (3) %

% of net revenue 37 % 18 % 37 % 17 %

Selling, general and administrative expense decreased $2.2 million to $36.5 million for the three months ended March 31, 2024, as compared to $38.7 million for the three months ended March 31, 2023.

The decrease was a result of decreases in payroll and other benefits expense of $1.9 million, professional fees of $1.2 million, depreciation and amortization of $0.6 million and other miscellaneous expense of $0.8 million.

These decreases were partially offset by increases in stock-based compensation of $1.7 million and bonuses of $0.7 million.

The decreases in payroll and other benefits and other miscellaneous expenses are attributable to recent reductions in workforce and cost reduction measures.

Selling, general and administrative expense decreased $0.1 million to $33.6 million for the three months ended June 30, 2024, as compared to $33.7 million for the three months ended June 30, 2023.

The decrease was a result of decreases in professional fees of $1.0 million, payroll and other benefits expense of $0.6 million, bonuses of $0.5 million, and commissions expense of $0.5 million.

These decreases were partially offset by an increase in stock based compensation of $2.4 million.

The decrease in professional fees is mainly due to a decrease in merger and acquisition related fees following the termination of our merger with Silicon Motion.

The decreases in payroll and other benefits and bonuses are attributable to the 2023 Workforce Reductions and other cost reduction measures.

The decrease in commissions expense is due to decreased revenues.

The increase in stock based compensation expense is a result of incremental grants made to executives for retention purposes in the first quarter of 2024.

Selling, general and administrative expense decreased $2.3 million to $70.1 million for the six months ended June 30, 2024, as compared to $72.4 million for the six months ended June 30, 2023.

The decrease was a result of decreases in payroll and other benefits expense of $2.5 million, professional fees of $2.3 million, depreciation and amortization of $1.0 million, and commissions of $0.7 million.

These decreases were partially offset by an increase in stock based compensation of $4.0 million.

The decreases in payroll and other benefits are attributable to the 2023 Workforce Reductions and other cost reduction measures.

The decrease in professional fees is mainly due to decrease in merger and acquisition related fees following the termination of our merger with Silicon Motion.

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decrease in depreciation and amortization is from assets becoming fully amortized as they reached the end of their useful lives.

The increase in stock-based compensation expense is due to incremental grants to executives for retention purposes, while the increase in bonus expense is due to improvement in year-to-date achievement against our annual operating plan relative to the prior year.

The decrease in depreciation and amortization is from assets becoming fully amortized as they reached the end of their useful lives.

The decrease in commissions expense is due to decreased revenues.

The increase in stock-based compensation expense is a result of incremental grants made to executives for retention purposes in the first quarter of 2024.

We are closely managing our selling, general and administrative expenses;

however, we expect selling, general and administrative expenses to increase in future years when we return to growing our sales and marketing organization to expand into existing and new markets.

Impairment Losses

Three Months Ended March 31,

2024 2023 $ Change % Change

(dollars in thousands)

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Impairment Losses

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

2024 2023 $ Change % Change 2024 2023 $ Change % Change

(dollars in thousands) (dollars in thousands)

Impairment losses $ — $ — $ — N/A $ — $ 2,438 $ (2,438) (100) %

% of net revenue — % — % — % 1 %

Impairment losses in the three months ended March 31, 2023 related to abandonment of certain intellectual property licenses.

Impairment losses in the six months ended June 30, 2023 related to abandonment of certain intellectual property licenses.

Restructuring Charges

Three Months Ended March 31,

2024 2023 $ Change % Change

(dollars in thousands)

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

2024 2023 $ Change % Change 2024 2023 $ Change % Change

(dollars in thousands) (dollars in thousands)

Restructuring charges $ 865 $ 4,436 $ (3,571) (81) % $ 23,495 $ 9,084 $14,411 159 %

% of net revenue 1 % 2 % 13 % 2 %

Restructuring charges increased $18.0 million to $22.6 million for the three months ended March 31, 2024, compared to $4.6 million for the three months ended March 31, 2023.

Restructuring charges for the three months ended March 31, 2024 included $19.9 million in employee severance and related charges related to reductions in our workforce and $2.1 million in charges related to reduction of space leased for office facilities.

Restructuring charges decreased $3.6 million to $0.9 million for the three months ended June 30, 2024, compared to $4.4 million for the three months ended June 30, 2023.

Restructuring charges for the three months ended June 30, 2024 included $0.8 million in charges related to reduction of space leased for office facilities.

Restructuring charges for the three months ended June 30, 2023 included $4.3 million in employee severance and related charges related to the 2023 Workforce Reductions.

Restructuring charges increased $14.4 million to $23.5 million for the six months ended June 30, 2024, compared to $9.1 million for the six months ended June 30, 2023.

Restructuring charges for the six months ended June 30, 2024 included $19.8 million in employee severance and related charges related to the 2023 Workforce Reductions and $3.0 million in charges related to reduction of space leased for office facilities.

Substantially all of the employee severance-related charges in this period are estimated statutory severance benefits payable in the jurisdictions in which the terminated employees were employed.

Restructuring charges for the three months ended March 31, 2023 included $4.6 million in employee severance and related charges related to reductions in our workforce.

Restructuring charges for the six months ended June 30, 2023 included $8.9 million in employee severance and related charges related to the 2023 Workforce Reductions.

Interest and Other Income (Expense)

Three Months Ended March 31,

2024 2023 $ Change % Change

(dollars in thousands)

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

2024 2023 $ Change % Change 2024 2023 $ Change % Change

(dollars in thousands) (dollars in thousands)

Interest and other income (expense), net $ (506) $ 1,177 $ (1,683) (143) % $ 39 $ (1,001) $ 1,040 (104) %

% of net revenue (1) % 1 % — % — %

Interest and other income (expense), net changed by $2.7 million from expense of $2.2 million in the three months ended March 31, 2023 to expense of $0.5 million for the three months ended March 31, 2024.

The change in interest and other income (expense), net was due to a foreign currency gain of $1.0 million in first quarter 2024 compared to a currency loss of $40 thousand in first quarter 2023, increase in interest income of $1.2 million on interest-bearing cash equivalents, and income of $0.6 million derived from privately held investments.

Income Tax Provision (Benefit)

Three Months Ended March 31,

2024 2023 $ Change % Change

(dollars in thousands)

Interest and other income (expense), net changed by $1.7 million from income of $1.2 million in the three months ended June 30, 2023 to expense of $0.5 million for the three months ended June 30, 2024.

The change in interest and other income (expense), net was mainly due to an unrealized gain on investment of $1.8 million in the 2023 period which we sold in the first quarter of 2024.

Interest and other income (expense), net changed by $1.0 million from expense of $1.0 million in the six months ended June 30, 2023 to expense of $39 thousand for the six months ended June 30, 2024.

The change in interest and other income (expense), net was due to an increase in interest income of $1.2 million on interest-bearing cash equivalents due to higher interest rates and a currency exchange gain of $1.5 million, partially offset by a decrease in gains on investments of $1.4 million and an increase in interest expense of $0.4 million as a result of higher interest rates.

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Income Tax Provision (Benefit)

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The income tax benefit for the three months ended March 31, 2024 was $1.8 million compared to an income tax provision of $15.6 million for the three months ended March 31, 2023.

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

2024 2023 $ Change % Change 2024 2023 $ Change % Change

(dollars in thousands) (dollars in thousands)

Income tax benefit $ (2,060) $ (409) $ (1,651) 404 % $ (3,822) $ 15,157 $ (18,979) (125) %

The income tax benefit for the three months ended June 30, 2024 was $2.1 million compared to an income tax benefit of $0.4 million for the three months ended June 30, 2023.

The income tax benefit for the six months ended June 30, 2024 was $3.8 million compared to an income tax provision of $15.2 million for the six months ended June 30, 2023.

The difference between our effective tax rate and the 21.0% U.S.

federal statutory rate for the three months ended March 31, 2024 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including tax credits, stock based compensation, and tax shortfalls related to stock-based compensation.

federal statutory rate for the six months ended June 30, 2024 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items, and stock based compensation, tax shortfalls related to stock-based compensation, and release of uncertain tax positions under ASC 740-10.

The difference between our effective tax rate and the 21.0% U.S.

federal statutory rate for the three months ended March 31, 2023 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including a tax on global intangible low-taxed income, research and development credits, stock based compensation, excess tax benefits related to stock-based compensation, and the release of certain reserves for uncertain tax positions under ASC 740-10.

The permanent tax item related to global intangible low-taxed income in this period also reflected legislative changes requiring the capitalization of research and experimentation costs, as well as limitations on the creditability of certain foreign income taxes.

federal statutory rate for the six months ended June 30, 2023 primarily related to the mix of pre-tax income among jurisdictions, permanent tax items including a tax on global intangible low-taxed income, stock based compensation, excess tax benefits related to stock-based compensation, and the release of uncertain tax positions under ASC 740-10.

The permanent tax item related to global intangible low-taxed income also reflected the then recent legislative changes requiring the capitalization of research and experimentation costs, as well as limitations on the creditability of certain foreign income taxes.

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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We also receive a reduced withholding tax rate on certain intercompany royalty payments made by our Singapore subsidiary during the incentive period.

We recorded a tax benefit in the three months ended March 31, 2024 and 2023 at the incentive rate.

We recorded income taxes in the six months ended June 30, 2024 and 2023 at the incentive rate.

The incentives are conditional upon our meeting certain minimum employment and investment thresholds within Singapore over time, and we may be required to return certain tax benefits in the event we do not achieve compliance related to that incentive period.

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Liquidity and Capital Resources

As of March 31, 2024, we had cash and cash equivalents of $191.9 million, restricted cash of $1.0 million and net accounts receivable of $126.2 million.

Additionally, as of March 31, 2024, our working capital, which we define as current assets less current liabilities, was $220.8 million.

As of June 30, 2024, we had cash and cash equivalents of $185.1 million, restricted cash of $1.0 million and net accounts receivable of $84.9 million.

Additionally, as of June 30, 2024, our working capital, which we define as current assets less current liabilities, was $207.3 million.

Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash and cash equivalents and accounts receivable.

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However, on July 26, 2023, we terminated the Merger Agreement and were relieved of our obligations to close.

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.

As of March 31, 2024, $125.0 million of principal was outstanding under a senior secured term B loan facility or the “Initial Term Loan under the June 23, 2021 Credit Agreement.” The Company also has available a senior secured revolving credit facility, in an aggregate principal amount of up to $100.0 million which remained undrawn as of March 31, 2024.

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We may also use cash to pay down outstanding debt and from time to time, make investments.

As of June 30, 2024, $125.0 million of principal was outstanding under a senior secured term B loan facility or the “Initial Term Loan under the June 23, 2021 Credit Agreement.” The Company also has available a senior secured revolving credit facility, in an aggregate principal amount of up to $100.0 million which remained undrawn as of June 30, 2024.

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.

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Commencing on September 30, 2021, the Initial Term Loan under the June 23, 2021 Credit Agreement has amortized 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.

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While we had been mitigating the impact of rising interest rates with large amounts of prepayments on our outstanding debt, if interest rates were to further increase substantially, it could have a material adverse effect on our operating results and could affect our ability to service the indebtedness.

Please refer to the Risk Factor entitled “ As of March 31, 2024, our aggregate indebtedness was $125.0 million, and we are subject to a variable amount of interest on the principal balance of our credit agreements and could continue to be adversely impacted by rising interest rates in the future.

Please refer to the Risk Factor entitled “ As of June 30, 2024, our aggregate indebtedness was $125.0 million, and we are subject to a variable amount of interest on the principal balance of our credit agreements and could continue to be adversely impacted by rising interest rates in the future.

Such indebtedness adversely affects our operating results and cash-flows as we satisfy our underlying interest and principal payment obligations and contains financial and operational covenants that could adversely affect our operational freedom or ability to pursue strategic transactions that we would otherwise consider to be in the best interest of stockholders, including obtaining additional indebtedness to finance such transactions.

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Cash paid to satisfy minimum tax withholdings on behalf of employees for restricted stock units are included in financing activities in our consolidated statements of cash flows.

As of March 31, 2024, our material cash requirements include long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations, which primarily consist of contractual payments due for computer-aided design software, as follows:

As of June 30, 2024, our material cash requirements include long-term debt, non-cancelable operating leases, inventory purchase obligations and other obligations, which primarily consist of contractual payments due for computer-aided design software, as follows:

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

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Total $ 262,420 $ 41,833 $ 81,911 $ 137,080 $ 1,596

Our planned capital expenditures as of March 31, 2024 were not material.

Our consolidated balance sheet at March 31, 2024 included $5.5 million in other long-term liabilities for uncertain tax positions, some of which may result in cash payment and $15.0 million received from other parties for jointly funded research and development projects which will be recognized into income when the contingencies associated with the repayment conditions have been resolved.

Our planned capital expenditures as of June 30, 2024 were not material.

Our consolidated balance sheet at June 30, 2024 included $4.4 million in other long-term liabilities for uncertain tax positions, some of which may result in cash payment and

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$15.0 million received from other parties for jointly funded research and development projects which will be recognized into income when the contingencies associated with the repayment conditions have been resolved.

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.

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Our primary sources of cash are cash receipts on accounts receivable from our shipment of products to distributors and direct customers, as well as proceeds that we receive under certain intellectual property sale agreements.

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

(in thousands)

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Total cash, cash equivalents, and restricted cash $ 186,137 $ 188,356

We believe that our $191.9 million of cash and cash equivalents at March 31, 2024 will be sufficient to fund our projected operating requirements for at least the next twelve months.

As of March 31, 2024, our indebtedness totaled $125.0 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, which remained undrawn as of March 31, 2024.

We believe that our $185.1 million of cash and cash equivalents at June 30, 2024 will be sufficient to fund our projected operating requirements for at least the next twelve months.

As of June 30, 2024, our indebtedness totaled $125.0 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, which remained undrawn as of June 30, 2024.

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 SOFR 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 SOFR rate, subject to a floor of 0.50%, plus an applicable margin of 2.25%.

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The June 23, 2021 Credit Agreement was amended on June 29, 2023 to implement a benchmark replacement.

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The 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)

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Effect of exchange rate changes on cash, cash equivalents and restricted cash (918) (1,228)

Increase in cash, cash equivalents and restricted cash $ 4,574 $ 20,479

Increase (decrease) in cash, cash equivalents and restricted cash $ (2,219) $ 37,286

Cash Flows from Operating Activities

Net cash provided by operating activities was $16.0 million for the three months ended March 31, 2024, compared to net cash provided by operating activities of $42.2 million three months ended March 31, 2023.

Net cash provided by operating activities was $13.3 million for the six months ended June 30, 2024, compared to net cash provided by operating activities of $72.7 million six months ended June 30, 2023.

The decline in operating cash flows was driven by a decline in revenue from decreased volume of shipments of our products as a result of macroeconomic conditions impacting customer demand for our products (as discussed under the heading, “Results of Operations,” above).

Operating cash flows were also impacted by changes in our working capital, which increased $66.5 million, in particular, in the first quarter of 2024, we collected accounts receivable of $68.3 million, which was partially offset by payments against our price protection liability of $18.6 million and severance payments from the Workforce Reductions of $7.0 million.

Operating cash flows were also impacted by changes in our working capital, which increased $79.2 million, in particular, in the first half of 2024, we collected accounts receivable of $164.2 million, which was partially offset by payments against our price protection liability of $33.3 million and severance payments from the 2023 Workforce Reductions of $17.7 million.

Cash Flows from Investing Activities

While our capital purchases increased $2.9 million in the first quarter of 2024, our use of cash in investing activities declined by $6.8 million, as we did not have an acquisition in the first quarter of 2024.

Net cash used in investing activities was $8.7 million for the three months ended March 31, 2024 and consisted of purchases of property and equipment of $8.3 million, and purchases of intangible assets of $0.4 million.

Net cash used in investing activities was $15.5 million for the three months ended March 31, 2023 and primarily consisted of cash used in the acquisition of Company Y of $9.7 million and purchases of property and equipment of $5.2 million.

Our use of cash in investing activities declined by $13.7 million as we reduced our capital spending and acquisition investments.

Our capital purchases of property and equipment and intangible assets decreased $1.3 million for the six months ended June 30, 2024, and we did not make any acquisition-related payments in the first half of 2024.

Net cash used in investing activities was $14.5 million for the six months ended June 30, 2024 and consisted of purchases of property and equipment of $11.4 million, and purchases of intangible assets of $3.1 million.

Net cash used in investing activities was $28.2 million for the six months ended June 30, 2023 and consisted of cash used in acquisitions of Company X and Y of $12.4 million (including $2.7 million contingent consideration paid to shareholders of Company X), purchases of property and equipment of $10.3 million, and purchases of intangible assets of $5.5 million.

Cash Flows from Financing Activities

Our use of cash in financing activities, which was substantially comprised of minimum tax withholding paid on behalf of employees for restricted stock units for both periods, declined due to a smaller amount of restricted stock units released for bonuses and a decline in value of other stock-related awards released during the periods.

Our use of cash in financing activities, which was comprised of minimum tax withholding paid on behalf of employees for restricted stock units for both periods, partially offset by net proceeds from issuance of common stock for stock-related awards to employees which declined due to a smaller amount of restricted stock units released for bonuses and a decline in value of other stock-related awards released during the periods.

Warranties and Indemnifications

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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