What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-03 · 130 added, 100 removed, 231 unchanged (50% of the section changed)

7 unchanged sentences

NETGEAR’s future operating performance and financial condition, including expectations regarding growth, revenue, expenses, operating margin, gross margin, continued profitability and cash generation;

NETGEAR’s plan to closely align end sales with revenue and expected efficiency, predictability and profitability;

NETGEAR’s strategic adjustments, long-term strategy and capital allocation priorities;

NETGEAR’s investments in developing new products and subscription services, enhancing current products and expanding channels and direct-to-consumer capabilities;

NETGEAR’s outsourcing strategy and its impact to products cost and gross margin;

NETGEAR's reporting structure;

NETGEAR's belief of the principal competitive factors in the consumer, business, and service provider markets for networking products;

expectations regarding more predictable performance that is aligned to the market;

inventory levels and expectation to return to historically normal inventory costs after reaching target inventory levels;

expectations regarding transportation costs;

expectations regarding demand in the premium portion of NETGEAR's Connected Home product portfolio;

NETGEAR’s strategy of capitalizing on technological inflection points, developing products that serve a broader segment and simplifying and developing service offerings that build recurring service revenue streams;

expectations regarding paid revenue from paid subscription service plans;

fluctuations in gross margin;

expectations regarding product mix and market demand for NETGEAR’s products and services, including NETGEAR for Business and Connected Home products and subscription services and NETGEAR’s ability to respond to this demand;

8 unchanged sentences

expectations regarding research and development expenses, sales and marketing expenses and general and administration expenses;

expectations regarding cash generation;

expectations regarding expected tax rates or tax expenses;

16 unchanged sentences

Our products and services are built on a variety of technologies such as wireless (WiFi and 4G/5G mobile), Ethernet and powerline, with a focus on reliability and ease-of-use.

Additionally, we continually invest in research and development to create new technologies and services and to capitalize on technological inflection points and trends, such as multi-Gigabit internet service to homes, WiFi 7, audio and video over Ethernet, and future technologies.

Our product line consists of devices that create and extend wired and wireless networks, as well as services that complement and

enhance our product line offerings.

Additionally, we continually invest in

research and development to create new technologies and services and to capitalize on technological inflection points and trends, such as multi-Gigabit internet service to homes, WiFi 7, audio and video over Ethernet, and future technologies.

Our product line consists of devices that create and extend wired and wireless networks, as well as services that complement and enhance our product line offerings.

These products are available in multiple configurations to address the changing needs of our customers in each geographic region.

23 unchanged sentences

Financial Overview

During the three months ended March 31, 2024, our net revenue decreased by $16.3 million, compared to the prior year period, mainly driven by decreases of $9.5 million in our NETGEAR for Business segment, and $6.8 million in our Connected Home segment.

The decrease in NETGEAR for Business net revenue was primarily due to lower demand for transactional switches attributable to the uncertain macro environment.

The decrease in Connected Home net revenue was primarily due to the prior year result benefiting from a higher total addressable market, leading to a year-over-year decline in the retail channel, partially offset by higher net revenue from the service provider channel.

Despite the decline in net revenue during the three months ended March 31, 2024, demand for our 5G mobile hotspots continued to grow.

During the three months ended June 30, 2024, our net revenue decreased by $29.5 million, compared to the prior year period, mainly driven by decreases of $15.1 million in our NETGEAR for Business segment and $14.4 million in our Connected Home segment.

The decrease in NETGEAR for Business net revenue was primarily due to our continuous work with our channel partners to optimize their inventory carrying levels.

The decrease in Connected Home net revenue was primarily due to market contraction, leading to a year-over-year decline in the retail channel.

Despite the decline in net revenue during the three months ended June 30, 2024, our premium portfolio of products continued to outperform the market.

We also experienced continued strong demand for the Pro AV product line of managed switches, and growth in our services revenue.

Our gross margin percentage decreased 410 basis points for the three months ended March 31, 2024, compared to the prior year period, in part attributable to Connected Home segment which experienced higher cost of inventory, greater mix of service provider products, and increased marketing spend as a percentage of net revenue.

Loss from operations increased by $9.7 million for the three months ended March 31, 2024, compared to the prior year period, primarily attributable to lower net revenue.

Geographically, net revenue from Connected Home and NETGEAR for Business decreased in Americas and EMEA, partially offset by increases in APAC during the three months ended March 31, 2024, compared to the prior year period.

Our gross margin percentage decreased 920 basis points during the three months ended June 30, 2024, compared to the prior year period, primarily attributable to higher cost of inventory, higher excess and obsolete inventory expense as we accelerated the depletion of our slower moving inventory, lower mix of NETGEAR for Business products, which generally carry higher gross margin, and higher promotional marketing spending in the retail market.

Loss from operations increased by $29.1 million during the three months ended June 30, 2024, compared to the prior year period, primarily attributable to lower net revenue, a $8.2 million litigation reserve relating to a contingent liability tied to a successful outcome of the International Trade Commission (ITC)

suit against TP-Link, and $6.0 million cash received relating to a favorable litigation settlement in the prior year period but not in the current year.

Geographically, net revenue decreased from Connected Home and NETGEAR for Business in Americas and EMEA during the three and six months ended June 30, 2024, as well as from Connected Home in APAC during the three months ended June 30, 2024, compared to the prior year periods, respectively.

Net revenue from Connected Home and NETGEAR for Business in APAC increased, during the six months ended June 30, 2024, compared to the prior year period.

Global Events Affecting our Business and Operations

5 unchanged sentences

Refer to Item 1A, Risk Factors of Part II of this Quarterly Report on Form 10-Q for various risks and uncertainties associated with the macroeconomic trends and uncertainty.

Looking forward, as the macro-economic environment remains challenged and higher than expected inflation and interest rates persist, given the increasing pressure on channel inventory and costs associated with having excess channel inventory, we have elected to accelerate the depletion of our slower moving inventory and will continue to work with our channel partners to optimize their inventory carrying levels in the second quarter to position us for a stronger second half of the year relative to the first half of the year.

Despite these challenges, we expect to continue to experience strong underlying demand in the premium portion of our Connected Home product portfolio powered by our premium WiFi mesh systems and 5G mobile hotspots, along with growth in the Pro AV market.

With the estimated impact to our second fiscal quarter to accelerate the inventory reduction with our channel partners being in the $25 million to $30 million range, we expect the net revenue in the second fiscal quarter of 2024 to be in the range of $125 million to $140 million, including $15 million from the service provider channels.

We aim to execute on our strategy of capitalizing on the technological inflection points of WiFi 7, WiFi 6E, WiFi 6, 5G, audio and video over Ethernet, to develop and expand the premium WiFi market through new product introductions and to develop and roll out service offerings that build recurring service revenue streams.

During the three months ended June 30, 2024, we completed efforts to work with our channel partners to optimize their inventory carrying levels for both the NETGEAR for Business and Connected Home businesses and expect to see more predictable performance that is aligned to the market in the periods ahead.

Looking forward, while the macro-economic environment remains challenged and higher than expected inflation and interest rates persist, we will continue to reduce our slower moving inventory levels and expect to return to our historically normal inventory costs after we reach our target inventory levels of three months, and when transportation costs return to normal from their heightened levels as a result of the Red Sea crisis.

We expect the net revenue in the third fiscal quarter of 2024 to be in the range of $160 million to $175 million, including $15 million from the service provider channels.

We aim to execute on our strategy of capitalizing on the technological inflection points of WiFi 7, WiFi 6E, WiFi 6, 5G, audio and video over Ethernet, to develop products that serve a broader segment of the market with a good, better, best product strategy, and to simplify, develop and roll out service offerings that build recurring service revenue streams.

Critical Accounting Estimates

8 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

March 31, 2024

April 2, 2023

June 30, 2024

Cost of revenue

3 unchanged sentences

General and administrative

Other operating expenses, net

Litigation reserves, net

Restructuring and other charges

Total operating expenses

2 unchanged sentences

Loss before income taxes

Benefit from income taxes

Provision for (benefit from) income taxes

Net Revenue by Geographic Region

2 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

March 31, 2024

April 2, 2023

June 30, 2024

Percentage of net revenue

2 unchanged sentences

Total net revenue

Net revenue in Americas decreased in the three months ended March 31, 2024, driven by declines in Connected Home segment’s net revenue of 7.2% and in NETGEAR for Business segment’s net revenue of 15.8%, respectively, compared to the prior year period.

The decline in Connected Home net revenue was primarily due to the prior year result benefiting from a higher total addressable market, leading to a year-over-year decline in the retail channel, partially offset by higher net revenue from the service provider channel, compared to the prior year period.

The decline in NETGEAR for Business net revenue was mainly due to lower demand for transactional switches attributable to the uncertain macro environment.

Net revenue in EMEA decreased in the three months ended March 31, 2024, compared to the prior year period, primarily due to the performance of both Connected Home and NETGEAR for Business segments, which experienced declines in net revenue of 33.6% and 14.5%, respectively.

The net revenue decline in NETGEAR for Business segment was mainly driven by lower demand for transactional switches attributable to the uncertain macro environment.

The net revenue decline in Connected Home segment was mainly due to lower net revenue from service provider channel.

Net revenue in APAC increased in the three months ended March 31, 2024, compared to the prior year period, mainly driven by a net revenue increase from the service provider channel in our Connected Home segment, whereas NETGEAR For Business net revenue was flat year over year.

Net revenue in Americas decreased in the three and six months ended June 30, 2024, driven by declines in Connected Home segment’s net revenue of 14.7% and 10.8%, and in NETGEAR for Business segment’s net revenue of 24.9% and 20.4%, respectively, compared to the prior year periods.

The declines in Connected Home net revenue were primarily due to market contraction, leading to year-over-year declines in the retail channel, compared to the prior year periods.

The decline in Connected Home net revenue in the six months ended June 30, 2024 was partially offset by higher net revenue from the service provider channel, compared to the prior year period.

The declines in NETGEAR for Business net revenue were mainly due to our continuous work with our channel partners to optimize their inventory carrying levels.

Net revenue in EMEA decreased in the three and six months ended June 30, 2024, compared to the prior year periods,

driven by declines in NETGEAR for Business segment’s net revenue of 26.0% and 20.0%, and in Connected Home segment’s net revenue of 20.8% and 27.4%, respectively.

The net revenue declines in NETGEAR for Business segment were mainly driven by our continuous work with our channel partners to optimize their inventory carrying levels.

The net revenue declines in Connected Home segment were mainly due to market contraction, leading to year-over-year declines in the retail channel in the three and six months ended June 30, 2024.

Net revenue in APAC was flat in the three months ended June 30, 2024, compared to the prior year.

Net revenue in APAC increased in the six months ended June 30, 2024, compared to the prior year period, mainly driven by a net revenue increase from the service provider channel in our Connected Home segment.

For further discussions specific to our Connected Home and NETGEAR for Business, refer to the " Segment Information " section below.

15 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

March 31, 2024

April 2, 2023

June 30, 2024

Cost of revenue

Gross margin percentage

Our gross margin percentage decreased for the three months ended March 31, 2024, compared to the prior year period, primarily attributable to Connected Home segment which experienced higher cost of inventory, greater mix of service provider products, which generally carried lower gross margin, and increased marketing expenditures as a percentage of net revenue.

In the second fiscal quarter of 2024, as we accelerate the depletion of our slower moving inventory, and continue to optimize our channel inventory level in our NETGEAR For Business segment, we expect our gross margin to be negatively impacted due to the product mix given NETGEAR For Business segment normally carries higher gross margin and high cost of inventory.

Our gross margin percentage decreased for the three and six months ended June 30, 2024, compared to the prior year periods, primarily attributable to higher cost of inventory, higher excess and obsolete inventory expense as we accelerated the depletion of our slower moving inventory, lower mix of NETGEAR for Business products, which generally carry higher gross margin, and higher promotional marketing spending in the retail market.

We expect our gross margin in the third fiscal quarter to start improving as the mix of NETGEAR for Business products increases with our channel partners having optimized their inventory carrying levels in the second fiscal quarter of 2024, and the impact from efforts to accelerate the depletion of our slower moving inventory is reduced.

Forecasting gross margin percentages is difficult, and there are a number of risks related to our ability to maintain or improve our current gross margin levels.

21 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

March 31, 2024

April 2, 2023

June 30, 2024

Research and development

Research and development expenses decreased for the three months ended March 31, 2024, compared to the prior year period, primarily driven by a decrease in professional service fees of $1.0 million and a decrease in personnel-related expenditures of $0.5 million.

Research and development expenses decreased for the three and six months ended June 30, 2024, compared to the prior year periods, primarily driven by decreases in personnel-related expenditures of $0.7 million and $1.2 million, mainly due to lower headcount, decreases in professional service fees of $0.1 million and $1.2 million, and decreases in IT and facility allocation of $0.1 million and $0.5 million, respectively.

We believe that innovation and technological leadership is critical to our future success, and we are committed to continuing a significant level of research and development to develop new technologies, products and services.

We expect research and development expenses in absolute dollar amount in the second fiscal quarter of 2024 to be in line with the same quarter of 2023.

We expect research and development expenses in absolute dollar amount in the third fiscal quarter of 2024 to be in line with the prior quarter level.

We continue to invest in research and development to grow our cloud platform capabilities, our services and mobile applications and to create and expand our hardware product offerings focused on premium WiFi 7, and WiFi 6/6E, Advanced 4G/5G mobile and 5G coverage solutions, audio and video over Ethernet, web-managed, AV over IP managed switches and NETGEAR for Business wireless products.

4 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

March 31, 2024

April 2, 2023

June 30, 2024

Sales and marketing

The decline in sales and marketing expenses for the three months ended March 31, 2024, compared to the prior year period, was primarily attributable to decreases in brand marketing expenditures of $2.0 million, and personnel-related expenditures of $1.1 million, mainly due to lower headcount.

We expect sales and marketing expenses in absolute dollar amount in the second fiscal quarter of 2024 to be in line with or slightly below the same quarter of 2023 level.

The declines in sales and marketing expenses for the three and six months ended June 30, 2024, compared to the prior year periods, were primarily attributable to decreases in brand marketing expenditures of $1.3 million and $3.3 million, and decreases in personnel-related expenditures of $1.0 million and $2.1 million, mainly due to lower headcount, respectively.

We expect sales and marketing expenses in absolute dollar amount in the third fiscal quarter of 2024 to be slightly up from the prior quarter level as we look to make some investments in sales resources in support of our NETGEAR for Business segment.

Expenses may fluctuate depending on revenue levels achieved as certain expenses, such as commissions, are determined based upon the revenues achieved.

6 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

March 31, 2024

April 2, 2023

June 30, 2024

General and administrative

The increase in general and administrative expenses for the three months ended March 31, 2024, compared to the prior year period, was primarily driven by increases in personnel-related expenditures of $1.5 million mainly due to higher variable compensation and expenses associated with CEO transition, as well as increases in legal and professional services fees of $1.0 million, mainly associated with litigation matters.

We expect general and administration expenses in absolute dollar amount in the second fiscal quarter of 2024 to be slightly above the same quarter of 2023 level, partially due to executive transition costs.

The increases in general and administrative expenses for the three and six months ended June 30, 2024, compared to the prior year periods, were primarily driven by increases in personnel-related expenditures of $3.0 million and $4.5 million, respectively, mainly due to higher variable compensation and expenses associated with CEO transition.

The increase in general and administrative expenses for the three months ended June 30, 2024, compared to the prior year period, was partially offset by a decrease in legal and professional service fees of $0.6 million, mainly associated with litigation matters.

We expect general and administration expenses in absolute dollar amount in the third fiscal quarter of 2024 to be up from the prior quarter level, primarily due to higher litigation defense costs.

General and administrative expenses could fluctuate depending on a number of factors, including the level and timing of expenditures associated with litigation defense costs in connection with the litigation matters described in Note 8, Commitments and Contingencies, in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Future general and administrative expense increases or decreases in absolute dollars are difficult to predict due to the lack of visibility of certain costs, including legal costs associated with defending claims against us, as well as legal costs associated with asserting and enforcing our intellectual property portfolio and other factors.

Other Operating Expenses (Income), Net

Other operating expenses (income), net consists of restructuring and other charges, litigation reserves, net, and change in fair value of contingent consideration.

The following table presents Other operating expenses (income), net for the periods indicated:

Litigation Reserves, Net

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

March 31, 2024

April 2, 2023

Other operating expenses, net

June 30, 2024

Litigation reserves, net

** Percentage change not meaningful.

For the three months ended March 31, 2024, we incurred restructuring and other charges of $1.0 million, associated with our reorganization to better align the cost structure of the business with projected revenue levels.

The increases in litigation reserves, net for the three and six months ended June 30, 2024, compared to the prior year periods, were attributable to $8.2 million litigation reserve relating to a contingent liability tied to a successful outcome of the International Trade Commission (ITC ) suit against TP-Link.

Restructuring and Other Charges

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

June 30, 2024

Restructuring and other charges

The changes in restructuring and other charges for the three and six months ended June 30, 2024, compared to the prior year periods, were immaterial.

For a detailed discussion of restructuring and other charges, refer to Note 13, Restructuring and Other Charges , in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

As our plan for developing a long-term strategy and prioritize the allocation of our capital to build a higher growth, and more profitable business, we expect to incur additional restructuring changes in the coming quarters driven by restructuring activities relating to executive transitions.

Other Income (Expenses), Net

Other income (expenses), net consists of interest income, which represents amounts earned and incurred on our cash, cash equivalents and short-term investments, and other income and expenses, which primarily represents gains and losses on transactions denominated in foreign currencies, gains and losses on investments, and other non-operating income and expenses, including gain on litigation settlements.

Other Income, Net

Other income, net consists of interest income, which represents amounts earned and incurred on our cash, cash equivalents and short-term investments, and other income and expenses, which primarily represents gains and losses on transactions denominated in foreign currencies, gains and losses on investments, and other non-operating income and expenses, including gain on litigation settlements.

The following table presents other income (expenses), net for the periods indicated:

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

March 31, 2024

April 2, 2023

June 30, 2024

Other income, net

** Percentage change not meaningful.

The change in other income (expenses), net for the three months ended March 31, 2024, compared to the prior year period, was primarily due to higher interest income resulting from higher interest rates and higher cash and short-term investment balances.

The decreases in other income, net for the three and six months ended June 30, 2024, compared to the prior year periods, were primarily due to $6.0 million cash received relating to a favorable litigation settlement in the prior year but not in the current year, partially offset by higher interest income resulting from higher interest rates and higher cash and short-term investment balances.

Provision for (Benefit from) Income Taxes

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

March 31, 2024

April 2, 2023

Benefit from income taxes

June 30, 2024

Provision for (benefit from) income taxes

Effective tax rate

The change in taxes for the three months ended March 31, 2024, compared to the prior year period, was primarily due to the continued full valuation allowance on deferred tax assets for U.S.

The changes in taxes for the three and six months ended June 30, 2024, compared to the prior year periods, were primarily due to the continued full valuation allowance on deferred tax assets for U.S.

federal and state purposes that was established during the period ended October 1, 2023.

We evaluated the current results as of the period ended March 31, 2024, coupled with the expectations for the remainder of the year, and determined that it continued to not be more likely than not that the deferred tax assets would be realized, and accordingly, recorded no benefit for the forecasted tax loss for the three months ended March 31, 2024.

By comparison, for the three months ended April 2, 2023, a tax benefit was recorded on the pre-tax loss since the valuation allowance on deferred tax assets had not yet been established.

We evaluated the current results as of the period ended June 30, 2024, coupled with the expectations for the remainder of the year, and determined that it continues to not be more likely than not that the deferred tax assets would be realized, and accordingly, did not record any benefits for the forecasted tax loss in for the three and six months ended June 30, 2024.

By comparison, for the three and six months ended July 2, 2023, tax benefits were recorded on the pre-tax loss since the valuation allowance on deferred tax assets had not yet been established.

We are subject to income taxes in the U.S.

10 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

March 31, 2024

April 2, 2023

June 30, 2024

Percentage of net revenue

2 unchanged sentences

** Percentage change not meaningful.

Connected Home net revenue decreased in the three months ended March 31, 2024, compared to the prior year period, primarily due to the prior year result benefiting from a higher total addressable market, leading to a year-over-year decline in the retail channel, partially offset by higher net revenue from the service provider channel in the Americas and APAC regions.

Despite a decline in the overall consumer networking market during the three months ended March 31, 2024, our 5G mobile hotspots continued to grow, and we saw growth in our services revenue, as compared to the prior year period.

Geographically, Connected Home net revenue decreased in the Americas and EMEA regions, whereas net revenue in APAC increased in the three months ended March 31, 2024, compared to the prior year period.

Connected Home contribution loss increased in the three months ended March 31, 2024, compared to the prior year period, primarily due to higher cost of inventory, greater mix of service provider products, which generally carried lower gross margin, and increased marketing expenditure as a percentage of net revenue.

Connected Home net revenue decreased in the three and six months ended June 30, 2024, compared to the prior year periods, primarily due to market contraction, leading to year-over-year declines in the retail channel.

The decrease in Connected Home net revenue in the six months ended June 30, 2024 was partially offset by higher net revenue from the service provider channel in the Americas and APAC regions, compared to the prior year period.

Despite the declines in the overall consumer networking market during the three and six months ended June 30, 2024, our premium portfolio of products continued to outperform the market, and we saw growth in our services revenue, as compared to the prior year periods.

Geographically, Connected Home net revenue decreased in Americas and EMEA regions in the three and six months ended June 30, 2024, whereas net revenue in APAC decreased in the three months ended June 30, 2024 but increased in the six months ended June 30, 2024, compared to the prior year periods.

Connected Home contribution loss increased in the three and six months ended June 30, 2024, compared to the prior year periods, mainly attributable to lower net revenue, and lower gross margin achievement due to higher promotional marketing spending in the retail market, higher cost of inventory, higher excess and obsolete inventory expense as we accelerated the depletion of our slower moving inventory.

NETGEAR for Business Segment

Three Months Ended

Six Months Ended

(In thousands, except percentage data)

March 31, 2024

April 2, 2023

June 30, 2024

Percentage of net revenue

1 unchanged sentence

Contribution margin

NETGEAR for Business net revenue decreased for the three months ended March 31, 2024, compared to the prior year period, primarily due to l ower demand for transactional switches attributable to the uncertain macro environment, particularly in Americas and Europe.

NETGEAR for Business net revenue decreased for the three and six months ended June 30, 2024, compared to the prior year periods, primarily due to our continuous work with our channel partners to optimize their inventory carrying levels.

We continued to experience strong demand for the Pro AV product line of managed switches.

Geographically, NETGEAR for Business net revenue decreased in Americas and EMEA regions, whereas net revenue in APAC slightly increased in the three months ended March 31, 2024, compared to the prior year period.

NETGEAR for Business contribution income decreased in the three months ended March 31, 2024, compared to the prior year period, primarily due to lower net revenue, and lower gross margin achievement mainly attributable to higher cost of inventory.

Geographically, in the three and six months ended June 30, 2024, NETGEAR for Business net revenue decreased in Americas and EMEA regions, whereas net revenue in APAC region increased, respectively, compared to the prior year periods.

NETGEAR for Business contribution income decreased in the three and six months ended June 30, 2024, compared to the prior year periods, primarily due to lower net revenue, and lower gross margin achievement mainly attributable to higher excess and obsolete inventory expense as we accelerated the depletion of our slower moving inventory, and higher cost of inventory.

Liquidity and Capital Resources

Our principal sources of liquidity are cash, cash equivalents, short-term investments and cash generated from operations.

As of March 31, 2024, we had cash, cash equivalents and short-term investment of $289.4 million, an increase of $5.8 million from December 31, 2023.

As of March 31, 2024, approximately 31% of our cash and cash equivalents and short-term investments were outside of the U.S., which are subject to fluctuation based on the settlement of intercompany balances.

As of June 30, 2024, we had cash, cash equivalents and short-term investment of $294.3 million, an increase of $10.7 million from December 31, 2023.

As of June 30, 2024, approximately 27% of our cash and cash equivalents and short-term investments were outside of the U.S., which are subject to fluctuation based on the settlement of intercompany balances.

As we repatriate these funds in accordance with our designation of funds not permanently reinvested outside of the U.S., we will be required to pay income taxes in certain U.S.

2 unchanged sentences

The following table presents our cash flows for the periods presented.

Three Months Ended

Six Months Ended

(In thousands)

March 31, 2024

April 2, 2023

Cash provided by operating activities

June 30, 2024

Cash provided by (used in) operating activities

Cash used in investing activities

Cash provided by (used in) financing activities

Net cash decrease

Net cash increase (decrease)

Operating activities

Net cash provided by operating activities increased by $8.1 million in the three months ended March 31, 2024, compared to the prior year period, primarily due to favorable working capital movements.

Our accounts payable (excluding payables related to property and equipment) decreased from $46.4 million as of December 31, 2023 to $37.5 million as of March 31, 2024, primarily due to the reduction and timing of inventory receipts and supplier payments.

Accounts receivable decreased from $185.1 million as of December 31, 2023 to $172.8 million as of March 31, 2024, primarily due to the timing of cash collections and lower revenue.

Inventory decreased from $248.9 million as of December 31, 2023 to $211.3 million as of March 31, 2024.

We continue to make progress in optimizing our inventory carrying levels and start to accelerate the depletion of our slower moving inventory.

We expect to continue generating cash from operating activities in the remainder of fiscal 2024 as we make further progress in reducing our inventory.

Net cash provided by operating activities was $35.6 million in the six months ended June 30, 2024, as compared to net cash used of $25.5 million in the prior year period, primarily due to favorable working capital movements.

Our accounts payable (excluding payables related to property and equipment) decreased from $46.4 million as of December 31, 2023 to $39.2 million as of June 30, 2024, primarily due to the reduction and timing of inventory receipts and supplier payments.

Accounts receivable decreased from $185.1 million as of December 31, 2023 to $147.1 million as of June 30, 2024, primarily due to the timing of cash collections and lower revenue.

Inventory decreased from $248.9 million as of December 31, 2023 to $188.9 million as of June 30, 2024.

We expect to continue generating cash from operating activities in the second half of fiscal 2024 as we continue to reduce our slower moving inventory levels.

Investing activities

Net cash used in investing activities decreased by $3.3 million in the three months ended March 31, 2024, compared to the prior year period, mainly driven by lower net purchases of short-term investments.

Net cash used in investing activities decreased by $2.0 million in the six months ended June 30, 2024, compared to the prior year period, mainly driven by lower net purchases of short-term investments, partially offset by higher purchases of property and equipment.

Financing activities

Net cash used in financing activities was $9.9 million in the three months ended March 31, 2024, compared to net cash provided by financing activities of $2.2 million in the prior year period, primarily due to repurchases of our common stock in the current period.

Net cash used in financing activities was $22.3 million in the six months ended June 30, 2024, compared to net cash provided by financing activities of $0.2 million in the prior year period, primarily due to repurchases of our common stock in the current year period.

Based on our current plans and market conditions, we believe that our existing cash, cash equivalents and short-term investments, together with cash generated from operations, will be sufficient to satisfy our anticipated cash requirements in the short-term and long-term.

5 unchanged sentences

Under the authorizations, the timing and actual number of shares subject to repurchase are at the discretion of management and are contingent on a number of factors, such as levels of cash generation from operations, cash requirements for acquisitions and the price of our common stock.

During the three months ended March 31, 2024, we repurchased and retired, reported based on trade date, approximately 0.8 million shares of common stock, at a cost of approximately $11.4 million under the repurchase authorization.

We did not repurchase any shares of common stock during the three months ended April 2, 2023.

As of March 31, 2024, approximately 1.7 million shares remained authorized for repurchase under the repurchase program.

We also repurchased and retired, reported based on trade date, approximately 32,000 and 6,000 shares of common stock, at a cost of approximately $0.5 million and $0.1 million during the three months ended March 31, 2024 and April 2, 2023, respectively, to administratively facilitate the withholding and subsequent remittance of personal income and payroll taxes for individuals receiving Restricted Stock Units.

During the six months ended June 30, 2024, we repurchased and retired, reported based on trade date, approximately 1.6 million shares of common stock, at a cost of approximately $21.4 million under the repurchase authorization.

We did not repurchase any shares of common stock during the six months ended July 2, 2023.

As of June 30, 2024, approximately 0.9 million shares remained authorized for repurchase under the repurchase program.

On July 16, 2024, the Board of Directors authorized management to repurchase up to 3.0 million shares of our outstanding common stock, incremental to the remaining shares under our previous repurchase program.

We also repurchased and retired, reported based on trade date, approximately 197,000 and 147,000 shares of common stock, at a cost of approximately $2.9 million and $2.1 million during the six months ended June 30, 2024 and July 2, 2023, respectively, to administratively facilitate the withholding and subsequent remittance of personal income and payroll taxes for individuals receiving Restricted Stock Units.

For a detailed discussion of our common stock repurchases, refer to Note 9, Stockholders’ Equity , in Notes to Unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

1 unchanged sentence

Contractual and Other Obligations

Except as follows, there were no material changes outside of the ordinary course of business in our contractual obligations as of March 31, 2024, from those as of December 31, 2023, disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

As of March 31, 2024, we had $77.0 million of purchase obligations which represented short-term non-cancellable inventory-related purchase agreements with suppliers, as compared to $42.6 million as of December 31, 2023.

Except as follows, there were no material changes outside of the ordinary course of business in our contractual obligations as of June 30, 2024, from those as of December 31, 2023, disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

As of June 30, 2024, we had $71.7 million of purchase obligations which represented short-term non-cancellable inventory-related purchase agreements with suppliers, as compared to $42.6 million as of December 31, 2023.

Due to an elongation of the time from order placement to production that occurred several years ago, we issued purchase orders to supply chain partners beyond contractual termination periods.

As of March 31, 2024, $274.2 million of purchase orders beyond contractual termination periods remained outstanding.

As of June 30, 2024, $257.7 million of purchase orders beyond contractual termination periods remained outstanding.

These purchase orders may be cancelled by either party, however we may incur expenses for materials and components, such as chipsets purchased by the supplier to fulfill the purchase order, in the event of cancellation.

4 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk

During the three months ended March 31, 2024, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report.

During the six months ended June 30, 2024, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report.

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