What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-10-14 compared with 2021-10-25 · 104 added, 78 removed, 228 unchanged (44% of the section changed)

8 unchanged sentences

All financial information for our subsidiaries in Brazil is included in our consolidated financial statements on a one-month lag because their fiscal years end on July 31 of each year.

All tabular dollar amounts are in millions, except per share amounts.

All tabular amounts are in thousands.

For an overview of our business, including a discussion of our acquisition of our LED Solutions business from Cree and effects on us of COVID-19, see “PART I – Item 1.

1 unchanged sentence

As a result of our recent acquisitions and heightened focus on operational excellence over the past several years, we grew our net sales by 21% to $1.8 billion in 2022 compared to $1.5 billion in 2021.

Over the same period, our total segment operating income grew by 90.9% to $160.8 million, or 10.7% operating margin, in 2021, compared to $84.2 million, or 7.5% operating margin, in 2020.

See table below in “Segment Operating Income” for further details.

Over the same period, our consolidated GAAP operating income was $114.5 million, $55.2 million and $41.3 million for 2022, 2021 and 2020, respectively.

Our total non-GAAP segment operating income grew by 41.6% to $227.6 million, or 12.5% operating margin, in 2022, compared to $160.8 million, or 10.7% operating margin, in 2021.

See “Non-GAAP Measures of Segment Operating Income” below for further details.

Our operating expenses have grown in recent periods as we drive innovation, expand our products and services portfolio and invest in greater operational capabilities to support our growth.

Our total operating expenses grew in 2021, primarily as a result of the addition of the LED Solutions business.

We expect to continue to see increased operating expenses in 2022 as we record a full year of operating expenses for the LED Solutions business, continue to increase our investment in new products and services for the IPS business and experience the phase-out of certain Brazil financial tax credits, which result in an increase in operating expense in Memory Solutions.

Our total operating expenses grew in 2022, primarily as a result of a full year of operating expenses for the LED Solutions business.

We expect to continue to see increased operating expenses in 2023 as we record operating expenses for our Stratus acquisition and continue to increase our investment in new products and services for the IPS business.

Acquisition of Stratus Technologies

Subsequent to our fiscal year 2022, on August 29, 2022, we completed the acquisition of Storm Private Holdings I Ltd., a Cayman Islands exempted company (“Stratus Holding Company” and together with its subsidiaries, “Stratus Technologies”).

At the closing, SGH paid a cash purchase price of $225 million, subject to certain adjustments.

In addition, the seller has the right to receive, and SGH will be obligated to pay, contingent consideration (if any) of up to $50 million (the “Earn-Out”) based on the gross profit performance of the Stratus business during the first full 12 fiscal months of Stratus following the closing.

The Earn-Out, if any, will be payable in cash, ordinary shares of SGH, or a mix of cash and SGH Shares, at SGH’s election.

Stratus is a global leader in simplified, protected, and autonomous computing platforms and services in the data center and at the Edge.

For more than 40 years, Stratus has provided high-availability, fault-tolerant computing to Fortune 500 companies and small-to-medium sized businesses enabling them to securely and remotely run critical applications with minimal downtime.

Factors Affecting Our Operating Performance

5 unchanged sentences

Finally, demand for our LED products is derived from targeted end-market applications, such as general high-power and mid-power lighting and specialty lighting, such as video and horticulture applications.

We believe our diversified business segments may provide a natural hedge against downturns in any particular industry although broader macro-economic trends, such as the COVID-19 pandemic, can adversely affect all three segments concurrently.

We believe our diversified business segments may provide a natural hedge against downturns in

any particular industry although broader macro-economic trends, such as the COVID-19 pandemic, can adversely affect all three segments concurrently.

Shifts in the Mix of Our Revenue.

18 unchanged sentences

Results of Operations

Year ended August 26,

2022 % of net

2021 % of net

2020 % of net

Memory Solutions $ 975,181 53.6 % $ 931,818 62.1 % $ 857,237 76.4 %

3 unchanged sentences

Cost of sales 1,366,132 75.1 % 1,192,762 79.5 % 905,981 80.7 %

Gross profit 453,220 24.9 % 308,380 20.5 % 216,396 19.3 %

Operating expenses:

2 unchanged sentences

Change in fair value of contingent consideration 41,324 2.3 % 32,400 2.2 % — — %

Other operating (income) expense

Total operating expenses 338,711 18.6 % 253,183 16.9 % 175,066 15.6 %

3 unchanged sentences

Other non-operating (income) expense 4,837 0.3 % (375) — % 16,970 1.5 %

Total non-operating expense

Total non-operating (income) expense 26,006 1.4 % 17,225 1.1 % 31,970 2.8 %

Income before taxes 88,503 4.9 % 37,972 2.5 % 9,360 0.8 %

5 unchanged sentences

Net Sales, Cost of Sales and Gross Profit

Net sales increased by $318.2 million, or 21.2%, in 2022 compared to the prior year, due to an increase of $178.6 million of revenue from our recent acquisition of the LED Business in March 2021 and to strong performance in our IPS and Memory Solutions businesses.

IPS net sales increased by $96.2 million, or 27.9%, primarily due to higher volumes of sales in our Penguin Computing business.

Memory Solutions sales increased by $43.4 million, or 4.7%, primarily due to a 12.2% higher volume of Specialty DRAM products, partially offset by a 34.5% lower volume of mobile memory.

Net sales increased by $378.8 million, or 33.7%, in 2021 compared to the prior year, due to $224.6 million of revenue from our recent acquisition of the LED Business in March 2021 and to strong performance in our IPS and Memory Solutions businesses.

1 unchanged sentence

Memory Solutions sales increased by $74.6 million, or 8.7%, primarily due to a 24.7% higher volume of DRAM products and a 39.1% increase in average selling prices for mobile memory.

Net sales decreased by $89.6 million, or 7.4%, in 2020 compared to the prior year, primarily due to $138.2 million lower Memory Solutions revenue, partially offset by $48.6 million higher IPS revenue.

The decrease in Memory Solutions sales was mainly due to lower DRAM and mobile memory product sales, primarily resulting from 32.8% and 36.5% lower average selling prices, respectively, partially offset by higher OEM Flash memory sales resulting from 74.8% higher average selling prices and product mix.

IPS sales increased by 22.4% over the prior year, primarily as the result of our two acquisitions in July 2019, which contributed to sales for the full year in 2020, partially offset by lower Penguin revenue due to lower federal spending as a result of COVID-19.

Cost of sales increased by $286.8 million, or 31.7%, in 2021 compared to the prior year, primarily due to higher cost of materials and production costs, due to a higher level of sales for our Memory Solutions and IPS segments, and from our acquisition of the LED Business.

Cost of sales decreased by $68.5 million, or 7.0%, in 2020 compared to the prior year, primarily due to lower cost of materials and production resulting from the lower level of overall sales, which was partially offset by higher materials and production costs related to the growth in the IPS segment resulting from acquisitions in 2019, for which there was a full year reflected for the first time in 2020.

Included in the cost of sales changes was a favorable foreign exchange impact of $5.9 million and $4.5 million due to locally sourced cost of sales in Brazil in 2021 and 2020, respectively.

Gross margin increased to 20.5% in 2021 compared to 19.6% in 2020 primarily due to inclusion of higher margin LED Solutions products in the second half of the year, as well as process and efficiency improvement in the Memory Solutions and IPS segments compared to the prior year.

Gross margin remained relatively flat at 19.3% in 2020, compared to 19.6% in 2019.

Segment Operating Income

August 27, 2021

August 28, 2020

August 30, 2019

Segment operating income:

Cost of sales increased by $173.4 million, or 14.5%, in 2022, and by $286.8 million, or 31.7%, in 2021 compared to the prior respective years, primarily due to our acquisition of the LED Business and from higher costs of materials and production costs due to higher sales for our Memory Solutions and IPS segments.

Gross margin increased to 24.9% in 2022 compared to 20.5% in 2021 primarily due to inclusion of higher margin LED Solutions products, as well as process and efficiency improvement in the Memory Solutions and IPS segments compared to the prior year.

Gross margin increased to 20.5% in 2021, compared to 19.3% in 2020 primarily due to the inclusion of higher margin LED Solutions products in the second half of the year.

Non-GAAP Measure of Segment Operating Income

Below is a table of our operating income, measured on a non-GAAP basis, which SGH management uses to supplement SGH’s financial results under GAAP to analyze its operations and make decisions as to future operational plans, and believes that this supplemental non-GAAP information is useful to investors in analyzing and assessing the Company’s past and future operating performance.

These non-GAAP measures exclude certain items, such as share-based compensation expense, amortization of acquisition-related intangible assets (consisting of amortization of developed technology, customer relationships, trademarks/trade names and backlog acquired in connection with business combinations), acquisition-related inventory adjustments, acquisition-related expenses, restructure charges and integration expenses, changes in the fair value of contingent consideration, and other infrequent or unusual items.

While amortization of acquisition-related intangible assets is excluded, the revenues from acquired companies is reflected in our non-GAAP measures and these intangible assets contribute to revenue generation.

See “PART II – Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Segment and Other Information.”

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP, as they exclude important information about our financial results, as noted above.

The presentation of these adjusted amounts varies from amounts presented in accordance with GAAP and therefore may not be comparable to amounts reported by other companies.

Year ended August 26, 2022 August 27, 2021 August 28, 2020

GAAP operating income $ 114,509 $ 55,197 $ 41,330

Share-based compensation expense 40,119 33,877 18,716

Amortization of acquisition-related intangibles 23,729 20,255 13,654

Flow-through of inventory step up — 7,090 —

Out of period import tax expense — 4,345 —

Acquisition and integration expenses 7,090 5,314 5,532

Change in fair value of contingent consideration 41,324 32,400 —

Other 858 2,316 4,997

Non-GAAP operating income $ 227,629 $ 160,794 $ 84,229

Non-GAAP operating income by segment:

Memory Solutions $ 119,849 $ 91,737 $ 71,867

1 unchanged sentence

LED Solutions 53,761 36,126 —

Total segment operating income

Share-based compensation

Change in fair value of contingent consideration

Amortization of intangible assets

Flow through of inventory step up

Restructure and integration expense

Consolidated operating income

Percentages represent segment operating income as a percentage of segment net sales.

In the fourth quarter of 2021, we reorganized SGH into three business units:

Memory Solutions, Intelligent Platforms Solutions and LED Solutions.

Two of our previous segments, specialty memory products and Brazil products, have been combined to become Memory Solutions.

Intelligent Platform Solutions was formerly referred to as specialty compute and storage solutions.

All prior year information in the table above has been revised to reflect the change to our three reportable segments.

Memory Solutions operating income increased by $19.8 million, or 27.6%, in 2021 compared to the prior year primarily due to higher sales, as well as a decrease of $10.8 million in operating expenses mainly driven by lower research and development expense due to Brazil financial credits.

Memory Solutions operating income decreased by $37.4 million, or 34.3%, in 2020 compared to the prior year primarily due to lower sales, partially offset by a decrease of $11.3 million in operating expenses mainly driven by lower research and development expense due to Brazil financial credits and lower research & development spend, travel and personnel-related expenses, as well as favorable currency exchange rates.

Total non-GAAP operating income by segment $ 227,629 $ 160,794 $ 84,229

Memory Solutions operating income increased by $28.1 million, or 30.6%, in 2022 compared to the prior year primarily due to higher sales, partially offset by an increase of $16.4 million in operating expenses, mainly driven by higher research and development expense due to lower Brazil financial credits.

Memory Solutions operating income increased by $19.9 million, or 27.6%, in 2021 compared to the prior year primarily due to higher sales, as well as a decrease of $10.8 million in operating expenses mainly driven by lower research and development expense due to higher Brazil financial credits.

IPS operating income increased by $21.1 million, or 64.0%, in 2022 compared to the prior year primarily due to higher sales, partially offset by $6.7 million higher operating expenses mainly driven by personnel-related expenses due to increased headcount to support the revenue growth.

IPS operating income increased by $8.8 million, or 245.4%, in 2020 compared to the prior year primarily due to higher sales, partially offset by $23.5 million higher operating expenses due to the full year inclusion of the operations of companies acquired in 2019.

IPS operating income increased by $20.6 million, or 166.4%, in 2021 compared to the prior year primarily due to higher sales, partially offset by $4.4 million higher operating expenses mainly driven by personnel-related expenses due to increased headcount to support the revenue growth.

LED Solutions operating income increased by $17.6 million, or 48.8%, in 2022 compared to the prior year as 2022 included a full year of operations compared to half a year in 2021.

LED Solutions operating income of $36.1 million in 2021 was due to our acquisition of the LED Business in March 2021.

1 unchanged sentence

Research and Development

Research and development expense decreased by $2.8 million, or 5.3%, in 2021 compared to the prior year, primarily due to an increase of $23.6 million in the Brazil financial credits that are reflected as a reduction of research and development expenses.

Research and development expense increased by $28.1 million, or 57.0%, in 2022 compared to the prior year, primarily due to $17.0 million additional costs from the acquisition of the LED Business, as well as a decrease of $12.8 million in the Brazil financial credits that are reflected as a reduction of research and development expenses.

The credits result from amendments to the IT law implemented in April 2020.

We expect research and development expense to increase in absolute dollars in 2023 as we include the operations for our Stratus acquisition and lower Brazil financial credits.

Research and development expense decreased by $2.8 million, or 5.3%, in 2021 compared to the prior year, primarily due to an increase of $23.6 million in the Brazil financial credits in 2021, which are reflected as a reduction of research and development expenses.

The credits result from amendments to the IT law implemented in April 2020.

The increase in credits is partially offset by $16.0 million additional costs from the acquisition of the LED Business as well as higher personnel-related expenses and depreciation.

In addition, research and development expense was favorably affected in 2021 by $2.7 million from the impact of currency exchange rates.

We expect research and development expense to increase in absolute dollars in 2022 as we include the full year of operations for our LED Solutions segment and the effect of the end of the Brazil financial credits, currently scheduled to occur in January 2022.

Research and development expense increased by $4.1 million, or 8.6%, in 2020 compared to the prior year primarily due to $12.4 million higher costs from the addition of our IPS acquisitions in 2019, partially offset by $6.4 million of Brazil financial credits.

In addition, research and development expense was unfavorably affected in 2020 by $2.2 million from the impact of currency exchange rates.

Selling, General and Administrative

Selling, general and administrative expense increased by $49.9 million, or 41.8%, in 2021 compared to the prior year, primarily due to $21.5 million of additional costs from the acquisition of the LED Business (including $1.0 million in intangible amortization expense) as well as $14.1 million of higher share-based compensation expense, personnel-related expenses, professional services and acquisition expenses associated with the acquisition.

Included in the selling, general and administrative expense increase was a favorable foreign exchange impact of $1.2 million.

We expect selling, general and administrative expense to increase in absolute dollars in 2022 as we include the full year of operations for our LED Solutions segment.

Selling, general and administrative expense increased by $16.3 million, or 15.8%, in 2020 compared to the prior year, primarily due to $16.8 million of higher costs from the addition of our IPS acquisitions in 2019 (including intangible amortization expense) as well as integration expenses associated with the acquisitions.

In addition, selling, general and administrative expense was favorably affected in 2020 by $1.5 million from the impact of currency exchange rates.

Selling, general and administrative expense increased by $48.5 million, or 28.3%, in 2022 compared to the prior year, primarily due to $26.0 million of additional costs from the acquisition of the LED Business as well as higher personnel-related expenses, professional services and acquisition expenses associated with the acquisition.

We expect selling, general and administrative expense to increase in absolute dollars in 2023 as we include the operations for our Stratus acquisition.

Selling, general and administrative expense increased by $48.5 million, or 39.4%, in 2021 compared to the prior year, primarily due to $21.5 million of additional costs from the acquisition of the LED Business as well as $14.1 million of higher share-based compensation expense, personnel-related expenses, professional services and acquisition expenses associated with the acquisition.

Change in Fair Value of Contingent Consideration

Our acquisition of the LED Business included contingent consideration, which we estimated the fair value as of the date of acquisition to be $28.1 million.

During the second half of 2021, we recorded charges of $32.4 million to adjust the value as of the date of acquisition to the fair value as of the end of 2021.

The change in fair value reflected new information about the probability and timing of meeting the conditions of the revenue and gross profit targets of the LED Business.

Our acquisition of the LED Business included contingent consideration, for which we estimated the fair value as of the date of acquisition to be $28.1 million.

During 2022 and the second half of 2021, we recorded charges of $41.3 million and $32.4 million, respectively, to adjust the value.

The changes in fair value reflected new information about the probability and timing of meeting the conditions of the revenue and gross profit targets of the LED Business.

Based on the revenue and gross profit performance of the LED Business in Cree’s first four full fiscal quarters following the closing, the final calculated value of the contingent consideration was $101.8 million.

See further information in “Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Business Acquisitions – LED Business.”

Other Operating and Non-o perating (Income) Expense

Other operating (income) expense in 2021 and 2020 primarily reflected restructuring activities in our IPS and Memory Solutions segments.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Business Acquisition – LED Business.”

Other Non-operating (Income) Expense

Other non-operating (income) and expense primarily reflected gains and losses from changes in currency exchange rates, a loss in 2020 from the remeasurement of our Capped Calls and losses in 2020 from the extinguishment of debt.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Other Operating (Income) Expense” and “– Other Non-operating (Income) Expense.”

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Other Non-operating (Income) Expense.”

Income Tax Provision

Our provision for income taxes increased by $4.4 million in 2022, or 28.7%, compared to the prior year primarily due to higher income in non-U.S.

jurisdictions subject to tax.

Provision for income taxes decreased by $4.4 million in 2020, or 29.4%, compared to the prior year primarily due to lower income in non-U.S.

jurisdictions subject to tax, including foreign withholding taxes.

Our provision for income taxes increased by $5.0 million in 2021, or 47.3%, compared to the prior year primarily due to higher income in non-U.S.

jurisdictions subject to tax.

6 unchanged sentences

These Malaysia arrangements are scheduled to expire in August 2028 and are subject to certain conditions, for which we have complied in 2022, 2021 and 2020.

In general, these future tax holidays will have tax rates greater than our prior approved tax holidays, and therefore we expect that our effective income tax rate in the future may be higher depending on a combination of our overall and jurisdictional profitability.

In general, these future tax holidays will have tax rates greater than our prior approved tax holidays,

and therefore we expect that our effective income tax rate in the future may be higher depending on a combination of our overall and jurisdictional profitability.

For additional information, see “Item 8.

11 unchanged sentences

If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued product innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.

Credit Facility

In February 2022, we entered into a credit agreement (the “Credit Agreement”) with a syndicate of banks that provides for (i) a term loan credit facility in an aggregate principal amount of $275.0 million (the “2027 TLA”) and (ii) a revolving credit facility in an aggregate principal amount of $250.0 million (the “2027 Revolver,” and together with the 2027 TLA, the “Credit Facility”), in each case, maturing in February 2027 (subject to certain earlier “springing maturity” dates upon certain conditions specified in the Credit Agreement).

The Credit Agreement provides that up to $35.0 million of the 2027 Revolver is available for issuances of letters of credit.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt.”

On August 29, 2022, we entered into an incremental Amendment to the Credit Agreement that provides for incremental term loans in an aggregate amount of $300 million, on the same terms as the 2027 TLA and also maturing in February 2027 (together with the Credit Facility, the “Amended Credit Facility”).

With the funds from the Amended Credit Facility, we paid a cash purchase price of $225 million for the Stratus acquisition and also repaid in full the $101.8 million outstanding under the Earnout Note.

For more information, see “Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Subsequent Events.”

Contractual Obligations

For information regarding our debt obligations, see “Item 8.

2 unchanged sentences

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Commitments and Contingencies.”

Year ended August 26,

2022 August 27,

2021 August 28,

Net cash provided by operating activities $ 104,931 $ 153,350 $ 87,205

6 unchanged sentences

Net cash provided by operating activities in 2022 was $104.9 million, comprised primarily of net income of $68.6 million, adjusted for non-cash items of $158.0 million.

Operating cash flows were also affected by a $1.7 million increase in our net operating assets and liabilities, consisting primarily of increases of $137.9 million in inventories, $51.4 million in accounts receivable and $17.5 million in other current assets, offset by the effects of an increase of $215.0 million in accounts payable and accrued expenses.

The increase in both inventories and accounts payable and accrued expenses was primarily due to higher inventory along all business areas, and the increase in accounts receivable was primarily due to higher gross sales primarily in our Memory Solutions and IPS segments.

Net cash provided by operating activities in 2020 was $87.2 million, resulting primarily from a net loss of $1.1 million, adjusted for non-cash items of $83.1 million.

Operating cash flows also benefitted from a $5.3 million change in our net operating assets and liabilities, consisting primarily of an increase of $70.6 million in accounts payable and accrued expenses, partially offset by an increase of $51.8 million in inventories and an increase of $12.3 million in accounts receivable.

Operating cash flows were also adversely affected by a $121.6 million net increase in our operating assets and liabilities, consisting primarily of an increase of $97.5 million in accounts receivable and a decrease of $61.7 million in accounts payable and accrued expenses and other liabilities, partially offset by a decrease of $39.7 million in inventories.

The increase in accounts receivable was primarily due to higher gross sales in our Memory Solutions and IPS businesses.

The decreases in both accounts payable and accrued expenses and inventories were primarily due to lower inventories in our Memory Solutions and IPS businesses.

Net cash provided by operating activities in 2021 was $153.4 million, resulting primarily from net income of $22.5 million, adjusted for non-cash items of $125.0 million.

Operating cash flows also benefited from a $5.8 million net change in our operating assets and liabilities, consisting primarily of an increase of $208.1 million in accounts payable and accrued expenses and other liabilities, partially offset by increases of $137.9 million in inventories and $51.4 million in accounts receivable.

The increases in accounts payable and accrued expenses and in inventories were primarily due to higher inventories among all business areas.

The increase in accounts receivable was primarily due to higher gross sales primarily in our Memory Solutions and IPS segments.

Net cash provided by operating activities in 2020 was $87.2 million, comprised of a net loss of $1.1 million, adjusted for non-cash items of $78.0 million.

Operating cash flows also benefited from a $10.3 million net change in our operating assets and liabilities, consisting primarily of an increase of $65.8 million in accounts payable and accrued expenses and other liabilities and a decrease of $10.8 million in other assets, partially offset by increases of $51.8 million in inventories and $12.3 million in accounts receivable.

The increases in accounts payable and accrued expenses and in inventories were primarily due to the transition of manufacturing from contract manufacturers to the Company as well as higher purchases for certain programs.

The increase in accounts receivable was primarily due to timing of sales.

Net cash provided by operating activities in 2019 was $169.7 million, comprised of net income of $51.3 million, adjusted for non-cash items of $47.5 million.

Operating cash flows also benefitted from a $70.8 million change in our operating assets and liabilities, consisting primarily of decreases of $102.1 million in inventories and $35.2 million in accounts receivable, partially offset by an increase of $64.2 million in accounts payable and accrued expenses.

The decreases in inventories and accounts payable were primarily due to the reduction of inventory among all business areas as product lead times were reduced.

The decrease in accounts receivable was primarily due to lower gross sales.

Investing Activities :

Net cash used in investing activities in 2021 was $84.2 million, consisting primarily of $47.6 million used for purchases of property and equipment and $35.7 million net cash used for the acquisition of the LED Business.

Net cash used in investing activities in 2022 was $39.0 million, consisting primarily of $38.2 million used for purchases of property and equipment.

Net cash used in investing activities in 2021 consisted primarily of $47.6 million used for purchases of property and equipment and $35.7 million net cash used for the acquisition of the LED Business.

Net cash used in investing activities in 2020 consisted primarily of purchases of property and equipment.

Net cash used in investing activities in 2019 consisted primarily of $76.1 million net cash used for acquisitions and $33.4 million used for purchases of property and equipment.

Financing Activities :

Net cash provided by financing activities in 2021 was $2.8 million, consisting primarily of $25.0 million in net proceeds from borrowing under our line of credit, $14.9 million in proceeds from the issuance of ordinary shares and $11.4 million proceeds from issuance of debt, partially offset by $48.5 million used to repurchase our ordinary shares.

Net cash provided by financing activities in 2020 consisted primarily of $243.1 million proceeds from the issuance of our convertible notes and $5.5 million in proceeds from the issuance of ordinary shares, partially offset by $204.9 million in payments for the extinguishment of debt, $21.8 million for the purchase of our Capped Calls and payment of $8.5 million for debt.

Net cash provided by financing activities in 2019 was negligible.

Critical Accounting Estimate s

Net cash provided by financing activities in 2022 was $73.9 million, consisting primarily of $278.7 million in net proceeds from issuance of a term loan and $12.1 million in proceeds from the issuance of ordinary shares from our equity plans, partially offset by $127.1 million in principal repayment of the LED Purchase Price Note, $57.2 million of payments to acquire ordinary shares (including $50.0 million under our share repurchase program) and $25.0 million in net repayments of borrowings under our line of credit.

Net cash provided by financing activities in 2021 was $2.8 million, consisting primarily of $25.0 million in net proceeds from borrowings under our line of credit, $14.9 million in proceeds from the issuance of ordinary shares and $11.4 million in proceeds from the issuance of debt, partially offset by $48.5 million used to repurchase our ordinary shares.

Net cash provided by financing activities in 2020 consisted primarily of $243.1 million proceeds from the issuance of our 2026 Notes and $5.5 million in proceeds from the issuance of ordinary shares, partially offset by $204.9 million in payments for the extinguishment of debt, $21.8 million for the purchase of our Capped Calls and payment of $8.5 million for debt.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

4 unchanged sentences

Accounting for acquisitions requires us to estimate the fair value of consideration paid and the individual assets and liabilities acquired, which involves a number of judgments, assumptions and estimates that could materially affect the amount and timing of costs recognized in subsequent periods.

We typically obtain independent third-party valuation studies to assist in determining fair values, including assistance in determining future cash flows, discount rates and comparable market values.

We typically obtain independent third-

party valuation studies to assist in determining fair values, including assistance in determining future cash flows, discount rates and comparable market values.

Items involving significant assumptions, estimates and judgments include the following:

17 unchanged sentences

Realization of deferred tax assets is dependent on our ability to generate future taxable income.

Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in these and other jurisdictions.

Our income tax provision or benefit is dependent, in part, on our ability to forecast future taxable income in various jurisdictions.

Such forecasts are inherently difficult and involve significant judgments including, among others, projecting future average selling prices and sales volumes, manufacturing and overhead costs and other factors that significantly impact our analyses of the amount of net deferred tax assets that are more likely than not to be realized.

8 unchanged sentences

Our provision for excess and obsolete inventory are also impacted by our arrangements with our customers and/or suppliers, including our ability or inability to resell such inventory to them.

Goodwill and I ntangible A ssets :

Goodwill and Intangible Assets :

We test goodwill for impairment in our fourth quarter each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value.

36 unchanged sentences

A portion of our revenue is derived from the sale of customized products.

In certain cases, we recognize revenue when control of the underlying assets pass to the customer when the customer is able to direct the use of, and obtain substantially all of the remaining benefit from, the assets;

In certain cases, we recognize revenue when control of the underlying assets passes to the customer when the customer is able to direct the use of, and obtain substantially all of the remaining benefit from, the assets;

the customer has the significant risks and rewards associated with ownership of the assets;

4 unchanged sentences

Supply chain services includes procurement, logistics, inventory management, temporary warehousing, kitting and packaging.

Professional services include solution design, system installation, software automation and managed support services related to HPC and storage systems.

Professional services include solution design, system installation, software automation and managed support services

related to HPC and storage systems.

A portion of our product sales include extended warranty and on-site services, subscriptions to our HPC environment, professional services, software and related support.

15 unchanged sentences

The standalone selling price for products primarily involves the cost to produce the deliverable plus the anticipated margin and for services is estimated based on our approved list price.

A portion of our service revenue is from professional consulting services, including installation and other services and hardware and software related support.

A portion of our service revenue is from professional services, including installation and other services and hardware and software related support.

Each contract may contain multiple performance obligations, which requires the transaction price to be allocated to each performance obligation.

2 unchanged sentences

As a practical expedient, we recognize the incremental costs of obtaining a contract, specifically commission expenses that have an amortization period of less than twelve months, as an expense when incurred.

Additionally, we account for as an expense when incurred.

Additionally, we account for shipping and handling costs, if any, that occur after control transfers to the customer as a fulfillment activity.

10 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis