What changed in this filing

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Item 1A. Risk Factors

2024-10-23 compared with 2024-07-24 · 73 added, 101 removed, 959 unchanged (15% of the section changed)

21 unchanged sentences

Our revenue has declined, and we may not sustain our current level of revenue, which has declined, and/or manage future growth effectively.

The impact of excess inventory in the channel has continued to influence our customers’ expected demand for certain of our products.

The impact of excess inventory in the channel has continued to influence our customers’ expected demand for certain of our products and negatively impact our revenue.

• Our business, financial condition and results of operations could continue to be adversely affected by military conflicts, geopolitical and economic tensions among or with countries in which we conduct business, including between the United States and China, Israel (and its conflicts with Iran and Lebanon), and among other countries.

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• We also are subject to risks associated with international geopolitical and military conflicts.

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• Changes in trade policies among the United States and other countries, in particular the imposition of new or higher tariffs, could place pressure on our average selling prices as our customers seek to offset the impact of increased tariffs on their own products.

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• If we are unable to attract, train and retain qualified personnel and senior management, our business, financial condition, results of operations and prospects could suffer.

• 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.

• 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 high 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 interests of stockholders, including obtaining additional indebtedness to finance such transactions.

In addition, rising interest rates may make it more difficult for us, our customers, and our distributors to obtain financing and service our respective interest and debt obligations, which in turn has an impact on customer demand for our products and our distributors’ business.

In addition, high interest rates may make it more difficult for us, our customers, and our distributors to obtain financing and service our respective interest and debt obligations, which in turn has an impact on customer demand for our products and our distributors’ business.

• We are subject to governmental laws, regulations and other legal obligations related to privacy, data protection, and cybersecurity.

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• We may, from time to time, make additional business acquisitions or investments, which involve significant risks.

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Risks Relating to Intellectual Property

• We have settled in the past intellectual property litigation and may in the future face additional claims of intellectual property infringement.

• We have settled in the past intellectual property litigation and may in the future face additional claims of intellectual property infringement, including indemnification claims based on intellectual property allegations.

Any current or future litigation could be time-consuming, costly to prosecute, defend or settle and result in damages and/or the loss of significant rights.

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We expect that we may not be able to obtain financing on favorable terms if at all or raise additional capital for any such payments.

Even if we are able to finance such payments through the incurrence of additional indebtedness, any material increase in our indebtedness would adversely affect our operating results and cash-flows as we satisfy our underlying interest and principal payment obligations.

Issuing additional shares of our common stock, if

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material, will result in dilution of existing shares outstanding.

Even if we are able to finance such payments through the incurrence of additional indebtedness, any material increase in our indebtedness would adversely affect our operating results and cash-

flows as we satisfy our underlying interest and principal payment obligations.

Issuing additional shares of our common stock, if material, will result in dilution of existing shares outstanding.

Any loan agreement is also expected to contain financial and operational covenants that would adversely affect our operational freedom or ability to pursue strategic transactions that we would otherwise consider to be in the best interests of stockholders, including obtaining additional indebtedness to finance such transactions.

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• our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements, or other purposes may be limited or financing may be unavailable;

• rising interest rates may make it more difficult for us, our customers, and our distributors to obtain financing and service our respective interest and debt obligations, which in turn has an impact on customer demand for our products as well as the business of our distributors;

• we could be subject to substantial variable interest rate risk because our interest rate under term loans typically varies based on a fixed margin over an indexed rate (such as for the Initial Term Loan under the June 23, 2021 Credit

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Agreement) or an adjusted base rate.

• high interest rates may make it more difficult for us, our customers, and our distributors to obtain financing and service our respective interest and debt obligations, which in turn has an impact on customer demand for our products as well as the business of our distributors;

If interest rates were to continue to increase substantially, and we incur additional indebtedness, it would adversely affect our operating results and could affect our ability to service the indebtedness;

• a portion of our cash flows is dedicated to the payment of interest and when applicable, principal, on our indebtedness and other obligations and will not be available for use in our business;

• our level of indebtedness, combined with rising interest rates, could limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate, including limiting our future investments or ability to enter into acquisitions and strategic partnerships, and obtain financing for such transactions;

• our level of indebtedness, combined with high interest rates, could limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate, including limiting our future investments or ability to enter into acquisitions and strategic partnerships, and obtain financing for such transactions;

• our high degree of indebtedness may make us more vulnerable to changes in general economic conditions and/or a downturn in our business, thereby making it more difficult for us to satisfy our obligations.

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Many of our competitors have substantially greater financial and other resources with which to withstand similar adverse economic or market conditions in the future.

Moreover, the competitive landscape is changing as a result of intense consolidation within our industry as some of our competitors have merged with or been acquired by other competitors, and other competitors have begun to collaborate with each other, which could result in significant changes to the competitive

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Moreover, the competitive landscape is changing as a result of intense

consolidation within our industry as some of our competitors have merged with or been acquired by other competitors, and other competitors have begun to collaborate with each other, which could result in significant changes to the competitive landscape.

In addition, changes in government trade policies, including the imposition of tariffs and export restrictions, as well as actions by government agencies, could limit our ability to sell our products to certain customers and adversely affect our ability to compete successfully.

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Worsening economic instability could continue to result in a cancellation of such orders or otherwise adversely affect spending for information technology and limit our ability to forecast future demand for our products, which could reduce expected revenues or result in a write-down of any excess or obsolete inventory.

Furthermore, during challenging economic times, our customers may face challenges in gaining timely access to sufficient credit, which could impact their ability to make timely payments to us.

Furthermore, during inflationary economic times, our customers may face challenges in gaining timely access to sufficient credit, which could impact their ability to make timely payments to us.

These events, together with economic volatility that may face the broader economy and, in particular, the semiconductor and communications industries, may adversely affect, our business, particularly to the extent that consumers decrease their discretionary spending for devices deploying our products.

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The current downturn, which was aggravated by certain factors such as high interest rates and excess channel inventory, has resulted in, or any future downturns may result in, diminished product demand, production overcapacity, high inventory levels and accelerated erosion of our average selling prices.

Furthermore, any future upturn in the semiconductor industry could result in increased competition for access to third-party foundry and assembly capacity.

Furthermore, any future upturn in the semiconductor

industry could result in increased competition for access to third-party foundry and assembly capacity.

We are dependent on the availability of this capacity to manufacture and assemble all of our products.

None of our third-party foundry or assembly

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contractors has provided assurances that adequate capacity will be available to us in the future.

None of our third-party foundry or assembly contractors has provided assurances that adequate capacity will be available to us in the future.

A significant downturn or upturn could have a material adverse effect on our business and operating results.

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Our revenue has declined, and we may not sustain our current level of revenue, which has declined, and/or manage future growth effectively.

The impact of excess inventory in the channel has continued to influence our customers’ expected demand for certain of our products.

Our net revenue decreased from $432.4 million in the six months ended June 30, 2023, to $187.3 million in the six months ended June 30, 2024, and the decline in net revenue could continue in future periods.

The impact of excess inventory in the channel has continued to influence our customers’ expected demand for certain of our products and negatively impact our revenue.

Our net revenue decreased from $567.9 million in the nine months ended September 30, 2023, to $268.4 million in the nine months ended September 30, 2024, and the decline in net revenue could continue in future periods.

Among other factors, the decrease is as a result of macroeconomic conditions impacting customer demand;

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We currently expect that revenue will fluctuate in the future, from period-to-period, consistent with the cyclical nature of our industry, and we could experience further decline in revenue in the future due to current macroeconomic conditions impacting customer demand for various products.

Further, the impact of excess inventory in the channel has continued to influence our customers’ expected demand for some of our products.

In addition, in the first half of 2024, we completed notifications to remaining affected employees regarding the 2023 Workforce Reductions, and in July 2024, we are initiating the 2024 Workforce Reduction.

We may not realize, in full or in part, the anticipated benefits, savings and improvements from the reduction of our workforce if our revenue continues to decline.

If we are unable to realize the expected operational efficiencies and cost savings from our reduction of our workforce, our operating results and financial condition would be adversely affected.

Further, the impact of excess inventory in the channel has continued to influence our customers’ expected demand for some of our products and negatively affected our revenue.

In addition, in July 2024, we initiated the 2024 Workforce Reduction and in the first half of 2024, we completed notifications to remaining affected employees regarding the 2023 Workforce Reductions.

We may not realize, in full or in part, the anticipated benefits, savings and improvements from the reductions of our workforce if our revenue continues to decline.

If we are unable to realize the expected operational efficiencies and cost savings from reductions of our workforce, our operating results and financial condition would be adversely affected.

You should not rely on our operating results for any prior quarterly or annual periods as an indication of our future operating performance.

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We sell our products throughout the world.

Products shipped to Asia accounted for 68% of our net revenue in the six months ended June 30, 2024.

In addition, as of June 30, 2024, approximately 77% of our employees are located outside of the United States.

Products shipped to Asia accounted for 72% of our net revenue in the nine months ended September 30, 2024.

In addition, as of September 30, 2024, approximately 77% of our employees are located outside of the United States.

The majority of our products are manufactured, assembled and tested in Asia, and our major distributors are located in Asia.

Multiple factors relating to our international operations and to particular countries in which we operate could have a material adverse effect on our business, financial condition and results of operations.

Multiple factors relating to our international operations and to particular countries in which we

operate could have a material adverse effect on our business, financial condition and results of operations.

These factors include:

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presidential election;

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• geopolitical conflicts and tensions, especially between the United States and China, that could destabilize trading relationships and economic activity;

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• disruptions of capital and trading markets;

• changes in import and/or export control restrictions and regulations by governments, such as changes to licensing requirements or other anti-diversion enforcement measures, as a result of ongoing armed conflict and geopolitical tensions among the United States, China, Russia, Ukraine, Iran, Israel and other countries or due to a change in administration from the upcoming U.S.

• changes in import and/or export control restrictions and regulations by governments, such as changes to licensing requirements or other anti-diversion enforcement measures, as a result of ongoing armed conflict and geopolitical tensions among the United States, China, Russia, Ukraine, Iran, Israel, Lebanon, and other countries or due to a change in administration from the upcoming U.S.

presidential election;

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In a number of cases, compliance with these policies has required us to take actions adverse to our business.

Beginning in May 2019, we ceased normal business operations with entities affiliated with Huawei Technologies Co., Ltd., and certain other entities following an amendment to the EAR which added these entities to the Entity List for acting

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contrary to the national security or foreign policy of the United States.

We obtained export licenses for certain transactions with these entities.

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Additionally, the geopolitical developments in relations between Taiwan and China could affect the supply of our products from Taiwan, including from Taiwan Semiconductor Manufacturing Company, Limited, or TSMC.

Such developments could include restriction on the export of products from Taiwan to China and/or restriction on the import of Taiwanese-origin products into China.

Such developments could

include restriction on the export of products from Taiwan to China and/or restriction on the import of Taiwanese-origin products into China.

We believe direct impacts of the U.S.

and European economic sanctions against Russia and the military conflict in Ukraine are currently limited to volatility in the prices of metals used by our outsourced semiconductor assembly and test, or OSAT, supply chain, in particular around the supply of palladium, for which Russia is the top producer in the world, as well as increased fuel costs, which has global impact on transportation costs, including the shipping and delivery of our products.

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

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The addition of new entities to restricted party lists can further increase the scope of export restrictions applicable to our business.

The United States has also announced measures intended to further restrict the export of certain advanced semiconductor products and technology, as well as products

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that incorporate those advanced semiconductor products, to the People’s Republic of China, or China, and/or certain companies located in China due to national security and human rights concerns, including the imposition of new license requirements for certain semiconductor technologies.

The United States has also announced measures intended to further restrict the export of certain advanced semiconductor products and technology, as well as products that incorporate those advanced semiconductor products, to the People’s Republic of China, or China, and/or certain companies located in China due to national security and human rights concerns, including the imposition of new license requirements for certain semiconductor technologies.

Failure to obtain required export licenses for our products or the placement of one or more of our customers on any restricted parties lists could significantly reduce our revenue and harm our business.

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On June 8, 2023, BIS closed out its review of our voluntary self-disclosure without monetary or other penalties and with the issuance of a “warning letter.”

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We depend on a limited number of customers for a substantial portion of our revenue, and the loss of, or a significant reduction in orders from, one or more of our major customers has had and could continue to have a material adverse effect on our revenue and operating results.

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The recipients of such intellectual property are also referred to as the Company’s customers.

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.

In the six months ended June 30, 2024, we have continued to experience a decrease in customer demand, and consequently a reduction in orders, primarily due to macroeconomic factors and excess inventory in the channel following the industry-wide supply shortage in 2021 and 2022.

In the nine months ended September 30, 2024, one customer accounted for 13% of our net revenue, and our ten largest customers collectively accounted for 64% of our net revenue, of which distributor customers accounted for 15% of our net revenue.

In the nine months ended September 30, 2024, we have continued to experience a decrease in customer demand, and consequently a reduction in orders, primarily due to macroeconomic factors, including slower than expected recovery in sales, and excess inventory in the channel following the industry-wide supply shortage in 2021 and 2022.

We expect that our operating results for the foreseeable future will continue to show a substantial percentage of sales dependent on a relatively small number of customers.

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The loss of a key customer, a reduction in sales to any key customer or our inability to attract new significant customers could seriously impact our revenue and materially and adversely affect our results of operations.

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A significant portion of our revenues are from sales of product to distributors, who then resell our product.

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presidential election.

Products shipped to mainland China accounted for less than 10% of our net revenue during the six months ended June 30, 2024, compared to 14% during the six months ended June 30, 2023.

Products shipped to mainland China accounted for less than 10% of our net revenue during the nine months ended September 30, 2024, compared to 12% during the nine months ended September 30, 2023.

Our current and future operating results could be materially and adversely affected by limitations on our ability to sell to one or more Chinese customers, as described in the section “Risks Related to Our Business” under the risk factors “We are also subject to risks associated with international geopolitical and military conflict” and “We will lose sales if we are unable to obtain or retain government authorization to export certain of our products or technology related to the development or production of our products or if such authorization are revoked, and we will be subject to legal and regulatory consequences if we do not comply with applicable export control laws and regulations” , and by tariffs and other trade barriers that have or may be implemented by governmental authorities.

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Our information technology infrastructure also includes products and services provided

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by third parties, and these providers can experience breaches of their systems and products, or provide inadequate updates or support, which can impact the security of our systems and our proprietary or confidential information.

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In addition, under certain of our agreements with key distributors,

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we provide protection for reductions in selling prices of the distributors’ inventory, which could have a material adverse effect on our operating results if the selling prices for those products fell dramatically.

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A significant portion of our revenue is attributable to demand for our products in markets for broadband solutions, and development delays and consolidation trends among cable and satellite Pay-TV and broadband operators could adversely affect our future revenues and operating results.

For the six months ended June 30, 2024 and 2023, revenue directly attributable to broadband applications accounted for approximately 29% and 31% of our net revenue, respectively.

We have experienced a decrease in broadband net revenue of $80.3 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, and negative impact to our revenues is expected to continue in the second half of 2024 and possibly beyond due to slower than expected recovery in this market.

Delays in the development of, or unexpected developments in, the broadband markets, including international macroeconomic headwinds, has had and is expected to continue to have an adverse effect on order activity by OEMs in these markets for the second half of 2024 and possibly thereafter and, as a result, on our business, revenue, operating results and financial condition.

For the nine months ended September 30, 2024 and 2023, revenue directly attributable to broadband applications accounted for approximately 32% and 30% of our net revenue, respectively.

We have experienced a decrease in broadband net revenue of $82.5 million for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, and negative impact to our revenues is expected to continue in the fourth quarter of 2024 and possibly beyond due to slower than expected recovery in this market.

Delays in the development of, or unexpected developments in, the broadband markets, including international macroeconomic headwinds, has had and is expected to continue to have an adverse effect on order activity by OEMs in these markets for the fourth quarter of 2024 and possibly thereafter and, as a result, on our business, revenue, operating results and financial condition.

In addition, consolidation trends among Pay-TV and broadband operators may continue, which could delay or lead to cancellations of major spending programs and have a material adverse effect on our future operating results and financial condition.

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We may be unable to make the substantial and productive research and development investments that are required to remain competitive in our business.

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Many of our products originated with our research and development efforts, which we believe have provided us with a significant competitive advantage.

For six months ended June 30, 2024, and 2023, our research and development expense was $121.3 million and $137.9 million, respectively.

While we are closely monitoring our current research and development expenses, we expect our research and development expenses to increase in future years when we return to expanding our product portfolio and enhancing existing products.

For nine months ended September 30, 2024, and 2023, our research and development expense was $173.9 million and $204.3 million, respectively.

While we have decreased our research and development spending to meet evolving demand, we expect our research and development expenses to increase in future years when we return to expanding our product portfolio and enhancing existing products.

We monitor such expenditures as part of our strategy of devoting focused research and development efforts on the development of innovative and sustainable product platforms.

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Our revenue and operating results have fluctuated in the past and are likely to fluctuate in the future.

For example, our revenue declined from $432.4 million for the six months ended June 30, 2023, to $187.3 million for the six months ended June 30, 2024 and revenue could continue to decline.

For example, our revenue declined from $567.9 million for the nine months ended September 30, 2023, to $268.4 million for the nine months ended September 30, 2024 and revenue could continue to decline.

These fluctuations may occur on a quarterly and on an annual basis and are due to a number of factors, many of which are beyond our control.

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• seasonality or cyclical fluctuations in our markets;

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• overall demand volatility for semiconductor solutions across a diverse range of communications, industrial and multi-market applications;

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• the effects of competitive pricing pressures, including decreases in average selling prices of our products.

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If our growth rate continues to slow, seasonal or cyclical variations in our operations may become more pronounced over time and may materially affect our business, financial condition, results of operations and prospects.

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however, we cannot provide any assurances that we will accurately predict the direction in which our markets will evolve or that we will be able to develop, market, or sell new products that respond to such changes successfully or in a timely manner, if at all.

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We are subject to order and shipment uncertainties, and differences between our estimates of customer demand and product mix and our actual results could continue to negatively affect our inventory levels, sales and operating results.

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If we are unsuccessful or delayed in qualifying any of our products with a customer, sales of this product to the customer may be precluded or delayed, which may result in a decrease in our revenue and cause our business to suffer.

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Winning business is subject to lengthy competitive selection processes that require us to incur significant expenditures.

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The costs of complying with these laws (including the costs of any investigations, remediation, auditing and monitoring) could adversely affect our current or future business.

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As indicated elsewhere in this report, we do a substantial portion of our business in Asia, including in Hong Kong, a special administrative region of the People’s Republic of China, or China.

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Climate change and its effects could lead to further increases in raw material prices or their reduced availability due to, for example, increased frequency and severity of extreme weather events and any supply chain disruptions resulting therefrom, and could cause increased incidence of disruption to the production and distribution of our products and an adverse impact on consumer demand and spending.

For example, as a fabless semiconductor company, we outsource our manufacturing to countries outside of the United States, and our manufacturers’ suppliers reside in areas that are more susceptible to extreme weather impacts.

If our suppliers have difficulty obtaining raw materials and natural resources due to extreme weather impacts, this could increase the cost associated with extraction of raw materials or limit the supply available for our key suppliers to manufacture our products, driving the cost up for us and/or threaten our upstream supply chain.

In recent months, there have been substantial legislative and regulatory developments on climate-related issues, including proposed, issued and implemented legislation and rulemakings that would require companies to assess and/or disclose climate metrics, risks, opportunities, policies and practices.

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Our future success depends on our ability to retain, attract and motivate qualified personnel, including our management, sales and marketing and finance teams, and especially our design and technical staff.

In March and October 2023, we initiated the 2023 Workforce Reductions, and in July 2024, we are initiating the 2024 Workforce Reduction to align our operational needs with the changes in macroeconomic conditions and the demand environment.

In July 2024, we initiated the 2024 Workforce Reduction, and previously, in March and October 2023, we initiated the 2023 Workforce Reductions, to align our

operational needs with the changes in macroeconomic conditions and the demand environment.

These workforce reductions may yield unintended consequences, such as attrition beyond our intended reduction in workforce and reduced employee morale, which may cause our employees who were not affected by the reduction in workforce to seek alternate employment.

Employees whose positions were eliminated or those who determine to seek alternate employment may seek employment with our

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In addition, our reduction in workforce may adversely impact our ability to implement our business strategy and respond rapidly to any new product, growth or revenue opportunities.

Employees whose positions were eliminated or those who determine to seek alternate employment may seek employment with our competitors.

In addition, our reductions in workforce may adversely impact our ability to implement our business strategy and respond rapidly to any new product, growth or revenue opportunities.

Additionally, reductions in workforce may make it more difficult to recruit and retain new employees.

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The loss of any member of our senior management team or other key personnel could harm our ability to implement our business strategy and respond to the rapidly changing market conditions in which we operate.

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.

As of September 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 high 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 interests of stockholders, including obtaining additional indebtedness to finance such transactions.

As of June 30, 2024, our aggregate indebtedness was $125.0 million from an initial secured term B loan facility, or the Initial Term Loan under the June 23, 2021 Credit Agreement.

The June 23, 2021 Credit Agreement also provides for a revolving credit facility of up to $100.0 million, or the Revolving Facility, which remains undrawn as of June 30, 2024.

As of September 30, 2024, our aggregate indebtedness was $125.0 million from an initial secured term B loan facility, or the Initial Term Loan under the June 23, 2021 Credit Agreement.

The June 23, 2021 Credit Agreement also provides for a revolving credit facility of up to $100.0 million, or the Revolving Facility, which remains undrawn as of September 30, 2024.

The credit agreement also 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” (as defined in such agreement), 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.

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

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The Initial Term Loan under the June 23, 2021 Credit Agreement has a seven-year term expiring in June 2028 and bears interest at either an Adjusted Term SOFR plus a fixed applicable margin of 2.25% or an Adjusted Base Rate plus a fixed applicable margin of 1.25%, at our option.

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Such obligations, including the guaranties, are secured by substantially all of our assets and those of the subsidiary guarantors.

Our material indebtedness adversely affects our operating expenses through increased interest payment obligations and adversely affects our ability to use cash generated from operations as we repay interest at a variable rate, which has been increasing, and principal under the term loans.

In addition, the Revolving Facility provisions under the June 23, 2021 Credit Agreement include financial covenants such as an initial maximum secured net leverage ratio of 3.50 to 1.00, which temporarily increases to 3.75 to 1.00 following the consummation of certain material permitted acquisitions, and operational covenants that may adversely affect our ability to engage in certain activities, including obtaining additional financing, granting liens, undergoing certain fundamental changes, or making investments or certain restricted payments, and selling assets, and similar transactions, without obtaining the consent of the lenders, which may or may not be forthcoming.

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Accordingly, outstanding indebtedness could adversely affect our operational freedom or ability to pursue strategic transactions that we would otherwise consider to be in the best interests of stockholders, including obtaining additional indebtedness to finance such transactions.

Specifically, our indebtedness and rising interest rates have important consequences to investors in our common stock, including the following:

Specifically, our indebtedness and high interest rates have important consequences to investors in our common stock, including the following:

• we are subject to variable interest rate risk because our interest rate under the Initial Term Loan under the June 23, 2021 Credit Agreement varies based on a fixed margin of 2.25% per annum over an adjusted Term SOFR rate or 1.25% per annum over an adjusted base rate and our interest rate for any outstanding principal under the revolving credit facility varies based a margin of 0% to 0.75% over adjusted base rate or a margin of 1.00% to 1.75% over an adjusted Term SOFR rate, and we are also subject to commitment fees ranging from 0.175% to 0.25% on the undrawn portion of the Revolving Facility.

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• a portion of our cash flows is dedicated to the payment of interest and when applicable, principal, on our indebtedness and other obligations and will not be available for use in our business;

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Subject to customary cure rights, any default would permit the holders of the indebtedness to accelerate repayment of this debt and could cause defaults under other indebtedness that we have, any of which could have a material adverse effect on the trading price of our common stock.

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We and our subsidiaries may, subject to any limitations in the terms of our existing loan facilities, incur additional debt, secure existing or future debt, recapitalize our debt or take a number of other actions that are not limited by the terms of our term loans that could have the effect of diminishing our ability to make payments under the indebtedness when due.

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Any inability, or perceived inability, to adequately address privacy and data protection concerns, or to comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations, even if unfounded,

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could result in additional cost and liability to us, damage our reputation, inhibit sales and have a material adverse effect on our business, results of operations, and financial condition.

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The benefits or synergies we may expect from the acquisition of

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complementary or supplementary businesses may not be realized to the extent or in the time frame we initially anticipate.

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Risks Relating to Intellectual Property

We have settled in the past intellectual property litigation and may in the future face additional claims of intellectual property infringement.

We have settled in the past intellectual property litigation and may in the future face additional claims of intellectual property infringement, including indemnification claims based on intellectual property allegations.

Any current or future litigation could be time-consuming, costly to prosecute, defend or settle and result in damages and/or the loss of significant rights.

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In order to maintain our relationships with existing customers and secure business from new customers, we

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have been required from time to time to provide additional assurances beyond our standard terms.

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If we pursue litigation to assert our intellectual property rights, an adverse decision in any of these legal actions could limit our ability to assert our intellectual property rights, limit the value of our technology or otherwise negatively impact our business, financial condition and results of operations.

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Monitoring unauthorized use of our intellectual property is difficult and costly.

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Subsequent events or new information can develop that changes our assessment of the

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impact of a security vulnerability, which can cause certain claims or customer satisfaction considerations, as well as result in litigation or regulatory inquiries or actions over these matters.

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Currently we do not have long-term supply contracts with most of our other third-party vendors, including but, not limited to Advanced Semiconductor Engineering, or ASE, TSMC, and United Microelectronics Corporation, or UMC.

While certain products are supplied to us by Intel on a turnkey basis under the terms of a supply agreement with an initial term of five years, Intel can terminate the agreement under certain circumstances.

If Intel terminates such supply agreement, the costs of certain products supplied to us by Intel could be negatively impacted, which could reduce our margins on such products.

Certain products are supplied to us by Intel on a turnkey basis at agreed upon prices under terms of a supply agreement with an initial term of five years, which will expire in July 2025.

Intel can also terminate its supply agreement with us under certain circumstances.

If Intel does not continue to supply us with such products, we would need to seek alternative sources of supply for those products in a short timeframe, which would cause us to incur additional costs, could delay the sale of such products, and could increase our supply costs with a new vendor, which in turn, could negatively impact our revenue and our gross margins.

Alternatively, if Intel does continue to supply us with such products, the costs of such products would likely increase and reduce our margins on such products, and their minimum purchase requirements may exceed our current customer demand.

We make substantially all of our purchases on a purchase order basis, and our contract manufacturers are not required to supply us products for any specific period or in any specific quantity.

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None of our third-party contractors has provided any assurance to us that adequate capacity will be available to us within the time required to meet additional demand for our products.

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We do not have our own manufacturing facilities and rely on a limited number of third parties to manufacture, assemble, and test our products.

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We also use third-party contractors for all of our assembly and test operations.

We also rely on Intel Corporation, or Intel, for certain products on a turnkey basis under a supply agreement with an initial term of five years.

We also rely on Intel Corporation, or Intel, for certain products on a turnkey basis at agreed upon prices under terms of a supply agreement with an initial term of five years, which will expire in July 2025 and may be terminated by Intel under certain circumstances.

Relying on third-party manufacturing, assembly and testing presents significant risks to us, including the following:

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• limited warranties on wafers or products supplied to us;

• potential increases in prices;

• potential increases in costs of our products;

• costs to switch to alternate sources of supply for certain products and/or delays in sales of such products, if a supplier does not continue to supply certain products;

• our use of foundry partners who are currently subject to BIS restrictions, such as SMIC, to manufacture certain of our products may be impaired if one or more of the following were to occur:

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In addition, if these third parties fail to deliver quality products and components on time and at reasonable prices, we could have difficulties fulfilling our customer orders, our net revenue could decline and our business, financial condition and results of operations would be adversely affected.

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Additionally, our product shipment and manufacturing capacity may be similarly reduced or eliminated at one or more facilities due to the fact that the majority of our fabrication and assembly and test contractors are all located in the Pacific Rim region, principally in China, Taiwan, and Singapore.

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We currently sell a significant portion of our products to customers through our distributors, who maintain their own inventories of our products.

Sales to distributors accounted for approximately 45%, and 47% of our net revenue in the six months ended June 30, 2024, and 2023, respectively.

Sales to distributors accounted for approximately 42%, and 47% of our net revenue in the nine months ended September 30, 2024, and 2023, respectively.

Upon shipment of product to these distributors, title to the inventory transfers to the distributor and the distributor is invoiced, generally with 30 to 60 day terms.

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It may be more difficult for

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us to correct any errors in a timely manner if at all because the development and maintenance of the technology is not within our control.

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The trading price of our common stock is highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.

For example, in the six months ended June 30, 2024, the trading price of our common stock ranged from a low of $16.20 to a high of $24.99.

For example, in the nine months ended September 30, 2024, the trading price of our common stock ranged from a low of $11.08 to a high of $26.59.

These factors include those discussed in this “Risk Factors” section of this report and others such as:

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These broad market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock.

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In the past, companies that have experienced volatility in the market price of their stock are attractive to momentum, hedge, day-trading, or activist investors who often shift funds into and out of stocks rapidly, exacerbating price fluctuations in either direction, and have also been subject to securities class action litigation.

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• require supermajority votes of the holders of our common stock to amend specified provisions of our charter documents.

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These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our management.

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Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.

As of June 30, 2024, we had approximately 83.9 million shares of common stock outstanding.

As of September 30, 2024, we had approximately 84.4 million shares of common stock outstanding.

All shares of our common stock are freely tradable without restrictions or further registration under the Securities Act unless held by our “affiliates,” as that term is defined under Rule 144 of the Securities Act.

Our Executive Incentive Bonus Plan permits the settlement of awards under the plan in the form of shares of our common stock.

We have issued shares of our common stock to settle such bonus awards for our employees, including executives, for the 2014 to 2023 performance periods, and we intend to continue this practice in the foreseeable future.

We issued 0.4 million shares of our common stock for the 2023 performance period in February 2024.

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Our corporate headquarters is located in Southern California.

Our operations and financial condition could be seriously harmed in the event of a major earthquake, fire, flooding, drought, or other natural disasters in Taiwan or the Pacific Rim region, or political unrest, war, labor strikes, work stoppages or public health crises, such as the outbreak of COVID-19, or other natural or man-made disaster in

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countries where our contractors’ facilities are located.

Our operations and financial condition could be seriously harmed in the event of a major

earthquake, fire, flooding, drought, or other natural disasters in Taiwan or the Pacific Rim region, or political unrest, war, labor strikes, work stoppages or public health crises, such as the outbreak of COVID-19, or other natural or man-made disaster in countries where our contractors’ facilities are located.

Such catastrophes could result in the disruption of our product shipments, foundry, assembly, or test capacity.

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Any such impairment charges relating to goodwill or other intangible assets could have a material impact on our operating results in future periods, and the announcement of a material impairment could have a material adverse effect on the trading price and trading volume of our common stock.

As of June 30, 2024, our balance sheet reflected goodwill of $318.6 million and other intangible assets of $61.8 million.

As of September 30, 2024, our balance sheet reflected goodwill of $318.6 million and other intangible assets of $58.0 million.

Consequently, we could recognize material impairment charges in the future.

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This has increased our effective tax rate and our cash tax payable since 2022.

If the requirement to capitalize Section 174 expenditures is not modified, it may also impact our effective tax rate and our cash tax liability in future years.

Further, following the enactment of the Tax Act, most of our income is now subject to U.S.

taxation, with a large portion taxed under the Global Intangible Low-Taxed Income, or GILTI, regime.

Starting in 2026, the GILTI deduction will decrease from 50% to 37.5%, leading to a higher effective tax rate on our income.

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

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Any such changes may also result in the taxes we previously paid being subject to change.

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Our income tax provision is subject to volatility and our ability to use our deferred tax assets to offset future taxable income may be limited since we are subject to tax examinations, which may adversely impact our future effective tax rate and operating results.

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On a periodic basis we evaluate our deferred tax assets for realizability.

Based upon our review of all positive and negative evidence, as of June 30, 2024, we continue to have a valuation allowance on state deferred tax assets, certain federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where we have cumulative losses or otherwise are not expected to utilize certain tax attributes.

Based upon our review of all positive and negative evidence, as of September 30, 2024, we continue to have a valuation allowance on state deferred tax assets, certain federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where we have cumulative losses or otherwise are not expected to utilize certain tax attributes.

The impact of releasing some or all of such valuation allowance in a future period could be material in the period in which such release occurs.

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We are subject to rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, which require us to include in our Annual Report on Form 10-K our management’s report on, and assessment of the effectiveness of, our internal controls over financial reporting.

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If we fail to maintain the adequacy of our internal controls, there is a risk that we will not comply with all of the requirements imposed by Section 404.

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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 1A. Risk Factors