What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-07 · 107 added, 113 removed, 145 unchanged (60% of the section changed)

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Power supplies incorporating our products are used with all manner of electronic products including mobile phones, computing and networking equipment, appliances, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of things” applications such as networked thermostats, power strips and security devices.

We also supply high-voltage LED drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-driver ICs addressing brushless DC (“BLDC”) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-appliance and light commercial applications.

Variations of our power-supply ICs are used for high-voltage power conversion in electric vehicles (“EVs”).

We also supply high-voltage LED drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-driver ICs for brushless DC (“BLDC”) motors used in consumer appliances, HVAC systems, ceiling fans and a variety of industrial applications.

We also offer high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical isolation components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors (“IGBTs”) and silicon-carbide (“SiC”) MOSFETs.

These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors, solar- and wind-power systems, electric vehicles (“EVs”) and high-voltage DC transmission systems.

These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from approximately 100 kilowatts up to gigawatts) such as industrial motors, solar- and wind-power systems, EVs and high-voltage DC transmission systems.

Our products bring a number of important benefits to the power-conversion market compared with less advanced alternatives, including reduced component count and design complexity, smaller size, higher reliability and reduced time-to-market.

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these include helping them meet the increasingly stringent efficiency standards now in effect for many electronic products, and enabling the elimination of bulky heatsinks used to dissipate the heat produced by wasted electricity.

Our power-conversion products are distinguished by their “system-level” nature;

that is, they incorporate into a single product numerous elements of a power-conversion system including a high-voltage transistor, drivers, advanced control circuitry and, in some cases, a communication link connecting the primary (i.e., input) and secondary (i.e., output) sides of the power converter while maintaining safety isolation to protect the end user from exposure to high voltage.

Alternatively, a power converter can be designed and assembled using discrete components purchased from a variety of suppliers.

Our system-level products offer a number of important benefits compared with discrete designs, including:

reduced design complexity;

smaller size;

lower component count, which in turn results in higher reliability and easier sourcing of components;

reduced time-to-market;

and more efficient use of engineering resources.

Our products also

reduce the energy consumption of power converters during normal use and in “standby” operation, when the end product is not in use.

In addition to the environmental and economic benefits of reduced energy usage, our energy-saving technologies provide a number of benefits to our customers;

these include helping them meet the increasingly stringent efficiency standards now in effect for many electronic products, and enabling the elimination of bulky, costly heatsinks used to dissipate the heat produced by wasted electricity.

By reducing component count, circuit-board size and the need for heatsinks, our products also contribute to a reduction in materials usage and electronic waste.

While the size of our addressable market fluctuates with changes in macroeconomic and industry conditions, the market has generally exhibited a modest growth rate over time as growth in the unit volume of power converters has been offset to a large degree by reductions in the average selling price of components in this market.

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● Increase our penetration of the markets we serve.

We currently address AC-DC applications with power outputs up to approximately 500 watts, gate-driver applications ranging from a few kilowatts up to gigawatts, and motor-drive applications up to approximately 400 watts.

We currently address AC-DC applications with power outputs up to approximately 500 watts, gate-driver applications ranging approximately 100 kilowatts up to gigawatts, and motor-drive applications up to approximately 400 watts.

Through our research and development efforts, we seek to introduce more advanced products for these markets offering higher levels of integration and performance compared to earlier products.

We also continue to expand our sales

and application-engineering staff and our network of distributors, as well as our offerings of technical documentation and design-support tools and services to help customers use our products.

We also continue to expand our sales and application-engineering staff and our network of distributors, as well as our offerings of technical documentation and design-support tools and services to help customers use our products.

These tools and services include our PI Expert™ design software, which we offer free of charge, and our transformer-sample service.

In 2022 we launched PowerPros ℠ , a live online video support service that enables power-supply designers to talk directly with members of our applications engineering team 24 hours a day, six days a week, anywhere in the world.

Our market-penetration strategy also includes capitalizing on the importance of energy efficiency and renewable energy in the power conversion market.

For example, our EcoSmart™ technology drastically reduces the amount of energy consumed by electronic products when they are not in use, helping our customers comply with regulations that seek to curb this so-called “standby” energy consumption.

Also, our gate-driver products are critical components in energy-efficient DC motor drives, high-voltage DC transmission systems, solar and wind energy systems and electric transportation applications.

● Capitalize on efforts to reduce carbon emissions by providing products that contribute to improved energy efficiency and increased use of renewable energy.

In its 2019 World Energy Outlook , the International Energy Agency estimated that more than two-thirds of the reduction in carbon-dioxide (“CO2”) emissions needed to achieve the “Sustainable Development Scenario” of the United Nations Sustainable Development Agenda is to come from improved energy efficiency and increased use of renewable energy.

Energy savings enabled by our products help our customers comply with regulations that seek to curb energy consumption in support of reducing CO2 emissions.

our EcoSmart™ technology drastically reduces the amount of energy consumed by electronic products when they are plugged in but not in use;

our PowiGaN™ gallium-nitride (“GaN”) transistors reduce energy consumption compared to silicon transistors;

and our BridgeSwitch™ motor-driver ICs provide highly efficient power conversion for BLDC motors in appliances and industrial applications.

Also, our gate-driver products are critical components in energy-efficient DC motor drives, solar- and wind-power systems, efficient high-voltage DC transmission systems (including transmission of energy from renewable energy installations to the power grid), and low-emissions transportation applications such as electric locomotives.

● Increase the size of our addressable market.

Prior to 2010 our addressable market consisted of AC-DC applications with up to about 50 watts of output, a served available market (“SAM”) opportunity of approximately $1.5 billion.

Since that time we have expanded our SAM to approximately $4 billion through a variety of means.

Since then we have expanded our SAM to approximately $4 billion through a variety of means.

These include the introduction of products that enable us to address higher-power AC-DC applications (such as our Hiper™ product families), the introduction of LED-driver products, and our entry into the gate-driver market through the acquisition of CT-Concept Technologie AG in 2012.

In 2016 we introduced the SCALE-iDriver TM family of ICs, broadening the range of gate-driver applications we can address, and in 2018 we introduced our BridgeSwitch™ motor-driver ICs, addressing BLDC motors, as described above.

We have recently introduced a series of automotive-qualified versions of our products, including SCALE-iDriver, InnoSwitch™ and LinkSwitch™ ICs, targeting the EV market;

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Also contributing to our SAM expansion has been the emergence of new applications within the power ranges that our products can address.

For example, applications such as “smart” utility meters, battery-powered lawn equipment and bicycles, and USB power receptacles (often installed alongside traditional AC wall outlets) can incorporate our products.

For example, applications such as “smart” utility meters, battery-

powered lawn equipment and bicycles, and USB power receptacles (often installed alongside traditional AC wall outlets) can incorporate our products.

The increased use of connectivity, LED lighting and other power-consuming electronic features in consumer appliances has also enhanced our SAM.

Finally, we have expanded our SAM through the development of new technologies that increase the value (and therefore the average selling prices) of our products.

We have also expanded our SAM through the development of technologies and architectures that increase the value (and therefore the average selling prices) of our products.

For example, our InnoSwitch™ ICs integrate circuitry from the secondary, or low-voltage, side of AC-DC power supplies, whereas earlier product families integrated circuitry only on the primary, or high-voltage side.

In 2019 we began incorporating proprietary gallium-nitride (“GaN”) transistors in some our products, enabling a higher level of energy efficiency than ICs with silicon transistors.

Since then, we have introduced a variety of new products utilizing GaN technology and we expect to address a wider range of applications with GaN-based products in the years ahead.

Our InnoMux™ IC families provide up to three DC outputs, eliminating the need for additional power-management circuitry in certain end products requiring multiple voltages while significantly increasing efficiency.

In 2019 we began incorporating our proprietary GaN transistors in some of our products, enabling a higher level of energy efficiency than ICs with silicon transistors.

Since then, we have introduced a variety of new products utilizing GaN technology, as well as new generations of our GaN technology capable of supporting higher voltages (as high as 1250 volts).

We are currently developing new products incorporating these technologies, which we believe will enable us to address higher-power applications than we address with our current range of products and therefore further expand our SAM.

We intend to continue expanding our SAM in the years ahead through all of the means described above.

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Changes in the prices of raw materials used in our products, such as copper and gold, can also affect our gross margin.

Although our wafer fabrication and assembly operations are

outsourced, as are most of our test operations, a portion of our production costs are fixed in nature.

Although our wafer fabrication and assembly operations are outsourced, as are most of our test operations, a portion of our production costs are fixed in nature.

As a result, our unit costs and gross margin are impacted by the volume of units we produce.

Recent Results

Our net revenues were $125.5 million and $160.2 million for the three months ended September 30, 2023 and 2022, respectively, and $355.0 million and $526.4 million in the nine months ended September 30, 2023 and 2022, respectively.

We believe that demand for our products has been negatively affected by an array of macroeconomic and geopolitical factors including reduced consumer spending in response to inflation and higher interest rates, softer housing markets, weaker demand for mobile phones, general economic weakness in China, the conflict in Ukraine and a shift in consumer spending toward travel and services following a period of elevated spending on goods during the COVID-19 pandemic.

Our net revenues were $91.7 million and $106.3 million in the three months ended March 31, 2024 and 2023, respectively.

We believe that demand for our products has been negatively affected by an array of macroeconomic and geopolitical factors including reduced consumer spending and a reduction in home sales in response to inflation and higher interest rates, general economic weakness in China, weaker industrial activity and the conflicts in Ukraine and the Middle East.

We believe these factors have exacerbated the effects of an ongoing cyclical downturn in the semiconductor industry;

such downturns are commonly experienced in our industry following periods of strong growth during which supply-chain participants tend to accumulate excess inventories.

Our top ten customers, including distributors that resell to original equipment manufacturers (“OEMs”) and merchant power supply manufacturers, accounted for 83% and 81% of net revenues for the three and nine months ended September 30, 2023, respectively, and 72% and 75% in the corresponding periods of 2022, respectively.

International sales accounted for 98% of our net revenues in both the three and nine months ended September 30, 2023, and 95% and 96% of our net revenues in the corresponding periods of 2022, respectively.

Our gross margin was 52.5% and 57.4% in the three months ended September 30, 2023 and 2022, respectively, and 51.5% and 56.9% for the nine months ended September 30, 2023 and 2022, respectively.

The decrease was primarily due to unfavorable end-market mix and lower manufacturing volume slightly offset by the favorable impact of the dollar/yen exchange rate on our wafer costs.

Total operating expenses were $48.2 million and $43.7 million in the three months ended September 30, 2023 and 2022, respectively, and $146.6 million and $140.0 million for the nine months ended September 30, 2023 and 2022, respectively.

The increases in operating expenses for the three-month and nine-month periods were primarily due to higher stock-based compensation expense related to performance-based awards, increased salary and related expenses and increased travel-related expenses partially offset by lower bad-debt expense and lower professional fees.

such downturns are commonly experienced following periods of strong growth during which supply-chain participants tend to accumulate excess inventories.

Also contributing to the decrease in revenues has been a reduction in sales of our products for mobile-phone chargers;

this reflects a variety of factors including increased decoupling of smartphone handsets and chargers, shifts in market share among handset vendors and diversification of component suppliers among Chinese handset OEMs, including greater use of Chinese-made components.

Our top ten customers, including distributors that resell to original equipment manufacturers (“OEMs”) and merchant power supply manufacturers, accounted for 77% and 78% of net revenues for the three months ended March 31, 2024 and 2023, respectively.

International sales accounted for 98% of our net revenues in both the three months ended March 31, 2024 and 2023.

Our gross margin was 52% and 51% for the three months ended March 31, 2024 and 2023, respectively.

The increase in gross margin was primarily due to favorable end-market mix and favorable impact of the dollar/yen exchange rate on our wafer costs.

Total operating expenses were $47.3 million and $48.2 million for the three months ended March 31, 2024 and 2023, respectively.

The decrease in operating expenses for the three-month period was primarily due to lower stock-based

compensation expense related to the timing of grants for performance-based awards, as well as decreased product-development expenses.

Partially offsetting these decreases were higher salary and related expenses driven by annual salary increases and increased travel expenses.

In addition, we recognized a credit to expenses in the first quarter of 2023 related to the recovery of bad debt.

Critical Accounting Policies and Estimates

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Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and Note 2, Significant Accounting Policies and Recent Accounting Pronouncements , in each case in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 12, 2024.

Currently, our only critical accounting policy relates to revenue recognition.

Currently, our only critical accounting policies relate to revenue recognition and estimating write-downs for excess and obsolete inventory.

Results of Operations

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Three Months Ended

Nine Months Ended

September 30,

Cost of revenues

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General and administrative

Other operating expenses, net

Total operating expenses

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Provision for income taxes

Comparison of the three and nine months ended September 30, 2023 and 2022

Comparison of the three months ended March 31, 2024 and 2023

Net revenues.

Net revenues consist of revenues from product sales, which are calculated net of returns and allowances.

Net revenues for the three and nine months ended September 30, 2023 were $125.5 million and $355.0 million, respectively, and $160.2 million and $526.4 million, in the corresponding periods of 2022, respectively.

The decrease in revenue for the three-month period ended September 30, 2023 was driven primarily by the industrial and consumer end-markets.

Inventories of our products at distributors and end customers in these end markets remained at elevated levels, while demand for consumer appliances and a variety of industrial products decreased reflecting such factors as general macroeconomic weakness and lower home sales.

Revenues from the communications end-market increased compared to the prior-year period reflecting new design wins and improved inventory levels in the smartphone supply chain.

Revenues from the computer end-market category decreased due to lower sales related to tablets and notebook computers.

For the nine-month period, revenues for all four end-market categories decreased compared to the corresponding prior-year period.

We believe that demand for our products in recent periods has been negatively affected by an array of macroeconomic and geopolitical factors including reduced consumer spending in response to inflation and higher interest rates, softer housing markets, weaker demand for mobile phones, general economic weakness in China, the conflict in Ukraine and a shift in consumer spending toward travel and services following a period of elevated spending on goods during the COVID-19 pandemic.

Net revenues for the three months ended March 31, 2024 and 2023 were $91.7 million and $106.3 million, respectively.

We believe these factors have exacerbated the effects of an ongoing cyclical downturn in the semiconductor industry;

such downturns are commonly experienced in our industry following periods of strong growth during which supply-chain participants tend to accumulate excess inventories.

Our revenue mix by end market for the three and nine months ended September 30, 2023 and 2022 was as follows:

such downturns are commonly experienced following periods of strong growth during which supply-chain participants tend to accumulate excess inventories.

Also contributing to the decrease in revenues has been a reduction in sales of our products for mobile-phone chargers;

this reflects a variety of factors including increased decoupling of smartphone handsets and chargers, shifts in market share among handset vendors, and diversification of component suppliers among Chinese handset OEMs, including greater use of Chinese-made components.

As a result of these factors, revenues from our communications category were lower in the three months ended March 31, 2024, as compared to the corresponding

period of 2023.

The reduction was partially offset by growth in the consumer category reflecting reduced supply-chain inventories related to consumer appliances.

Our revenue mix by end market for the three months ended March 31, 2024 and 2023 was as follows:

Three Months Ended

Nine Months Ended

September 30,

Communications

International sales, consisting of sales outside of the United States of America based on “bill to” customer locations, were $123.3 million and $348.1 million in the three and nine months ended September 30, 2023, respectively, and $151.8 million and $503.5 million in the corresponding periods of 2022, respectively.

International sales, consisting of sales outside of the United States of America based on “bill to” customer locations, were $90.1 million and $103.8 million in the three months ended March 31, 2024 and 2023, respectively.

Although power converters using our products are distributed to end markets worldwide, most are manufactured in Asia.

As a result, sales to this region represented 84% of our net revenues in both the three and nine months ended September 30, 2023, respectively, and 74% and 79%, in the corresponding periods of 2022, respectively.

As a result, sales to this region represented 81% and 80% of our net revenues in the three months ended March 31, 2024 and 2023, respectively.

We expect international sales, and sales to the Asia region in particular, to continue to account for a large portion of our net revenues in the future.

Sales to distributors accounted for 74% and 67% in the three and nine months ended September 30, 2023, respectively, and 65% and 71%, in the corresponding periods of 2022, respectively.

Sales to distributors accounted for 72% and 63% in the three months ended March 31, 2024 and 2023, respectively.

Direct sales to OEMs and power-supply manufacturers accounted for the remainder.

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Three Months Ended

Nine Months Ended

September 30,

Honestar Technologies Co., Ltd.

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Gross profit is net revenues less cost of revenues.

Our cost of revenues consists primarily of costs associated with the purchase of wafers from our contracted foundries, the assembly, packaging and testing of our products by sub-contractors, product testing performed in our own facilities, amortization of acquired intangible assets and overhead associated with the management of our supply chain.

Our cost of revenues consists primarily of the purchase of wafers from our contracted foundries, the assembly, packaging and testing of our products by sub-contractors, product testing performed in our own facility, overhead associated with the management of our supply chain.

Gross margin is gross profit divided by net revenues.

The table below compares gross profit and gross margin for the three and nine months ended September 30, 2023 and 2022:

The following table compares gross profit and gross margin for the three months ended March 31, 2024 and 2023:

Three Months Ended

Nine Months Ended

September 30,

(dollars in millions)

The decrease in our gross margin was primarily due to unfavorable end-market mix and lower manufacturing volume slightly offset by the favorable impact of the dollar/yen exchange rate on our wafer costs.

The increase in gross margin was primarily due to favorable end-market mix and favorable impact of the dollar/yen exchange rate on our wafer costs.

Research and development expenses.

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We also record R&D expenses for prototype wafers related to new products until such products are released to production.

The table below compares R&D expenses for the three and nine months ended September 30, 2023 and 2022:

The table below compares R&D expenses for the three months ended March 31, 2024 and 2023:

Three Months Ended

Nine Months Ended

September 30,

(dollars in millions)

Headcount (at period end)

R&D expenses increased for the three and nine months ended September 30, 2023 as compared to the corresponding periods of 2022 primarily due to increased stock-based compensation expense related to performance-based awards and, for the nine months ended September 30, 2023, increased equipment-related expenses and increased salaries and related expenses.

R&D expenses decreased for the three months ended March 31, 2024, as compared to the corresponding period of 2023 primarily due to decreased stock-based compensation expense related to the timing of grants of performance-based awards, as well as decreased product-development expenses.

These decreases were partially offset by higher salary and related expenses driven by annual salary increases, as well as increased travel expenses.

Sales and marketing expenses.

Sales and marketing (“S&M”) expenses consist primarily of employee-related expenses, including stock-based compensation, commissions to sales representatives, amortization of intangible assets and facilities expenses, including expenses associated with our regional sales and support offices.

The table below compares S&M expenses for the three and nine months ended September 30, 2023 and 2022:

The table below compares S&M expenses for the three months ended March 31, 2024 and 2023:

Three Months Ended

Nine Months Ended

September 30,

(dollars in millions)

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Headcount (at period end)

S&M expenses increased in the three and nine months ended September 30, 2023, as compared to the corresponding periods of 2022, primarily due to higher stock-based compensation expense related to performance-based awards, increased salaries and related expenses and increased travel-related expenses;

for the nine-month period these increases were partially offset by lower commissions expense.

S&M expenses for the three months ended March 31, 2024 were consistent with the corresponding period of 2023.

General and administrative expenses.

General and administrative (“G&A”) expenses consist primarily of employee-related expenses, including stock-based compensation expense, for administration, finance, human resources and general management, as well as consulting, professional services, legal and audit expenses.

The table below compares G&A expenses for the three and nine months ended September 30, 2023 and 2022:

The table below compares G&A expenses for the three months ended March 31, 2024 and 2023:

Three Months Ended

Nine Months Ended

September 30,

(dollars in millions)

Headcount (at period end)

G&A expenses increased for the three and nine months ended September 30, 2023 as compared to the corresponding periods of 2022, primarily due to higher stock-based compensation expense related to performance-based awards partially offset by lower bad-debt expense and lower professional fees.

Other operating expenses, net.

Other operating expenses, net were $1.1 million in the nine months ended September 30, 2022.

This amount consisted of a $2.9 million expense resulting from the settlement of our litigation with Opticurrent LLC on May 16, 2022, in which we agreed to pay Opticurrent $2.9 million to end all outstanding legal disputes, partially offset by receipt of a $1.7 million distribution related to the bankruptcy liquidation of SemiSouth Laboratories, Inc., of which we were a creditor as a result of investments made in SemiSouth in 2011.

G&A expenses increased for the three months ended March 31, 2024, as compared to the corresponding period of 2023, primarily due to a credit to expenses related to the recovery of bad debt in the prior year period.

The comparative increase in the three months ended March 31, 2024 was partially offset by decreased stock-based compensation expense related to the timing of grants of performance-based awards.

Other income .

Other income consists primarily of interest income earned on cash and cash equivalents, marketable securities and other investments, and the impact of foreign exchange gains or losses.

The table below compares other income for the three and nine months ended September 30, 2023 and 2022:

The table below compares other income for the three months ended March 31, 2024 and 2023:

Three Months Ended

Nine Months Ended

September 30,

(dollars in millions)

Other income increased for the three and nine months ended September 30, 2023, as compared to the corresponding periods of 2022, primarily due to higher interest income driven by higher interest rates on investments.

Other income increased for the three months ended March 31, 2024, as compared to the corresponding period of 2023, primarily due to higher interest income driven by higher interest rates on investments.

Provision for income taxes .

Provision for income taxes represents federal, state and foreign taxes.

The table below compares income-tax expense for the three and nine months ended September 30, 2023 and 2022:

The table below compares income-tax expense for the three months ended March 31, 2024 and 2023:

Three Months Ended

Nine Months Ended

September 30,

(dollars in millions)

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Accordingly, the interim effective tax rate may not be reflective of the annual estimated effective tax rate.

Our effective tax rate for both the three and nine months ended September 30, 2023 was 5.1%, as compared to 6.9% and 8.5%, respectively, for the corresponding periods of 2022.

Our effective tax rate for the three months ended March 31, 2024 and 2023 was 0.5% and 8.0%, respectively.

The effective tax rate in these periods was lower than the statutory federal income-tax rate of 21% due to the geographic distribution of our world-wide earnings in lower-tax jurisdictions and the impact of federal research tax credits.

Additionally, in the three months ended September 30, 2023, our effective tax rate was favorably impacted by the recognition of excess tax benefits related to share-based payments.

In the nine months ended September 30, 2023, our effective tax rate was favorably impacted by discrete items associated

with the release of unrecognized tax benefits and recognition of excess tax benefits related to share-based payments.

This benefit was partially offset by U.S.

Additionally, in the three months ended March 31, 2024 and 2023, our effective tax rate was favorably impacted by the recognition of excess tax benefits related to share-based payments and the release of unrecognized tax benefits.

These benefits were partially offset by U.S.

tax on foreign income, known as global intangible low-taxed income.

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Liquidity and Capital Resources

As of September 30, 2023, we had $356.6 million in cash, cash equivalents and short-term marketable securities, an increase of $2.8 million from $353.8 million as of December 31, 2022.

As of September 30, 2023, we had working capital, defined as current assets less current liabilities, of $502.7 million, an increase of approximately $36.0 million from $466.7 million as of December 31, 2022.

We have a credit agreement with Wells Fargo Bank, National Association (the "Credit Agreement") that provides us with a $75.0 million revolving line of credit to use for general corporate purposes with a $20.0 million sub-limit for the issuance of standby and trade letters of credit.

As of March 31, 2024, we had $299.6 million in cash, cash equivalents and short-term marketable securities, a decrease of $12.0 million from $311.6 million as of December 31, 2023.

As of March 31, 2024, we had working capital, defined as current assets less current liabilities, of $452.9 million, a decrease of approximately $9.8 million from $462.7 million as of December 31, 2023.

The Credit Agreement was amended on June 7, 2021, to provide an alternate borrowing rate as a replacement for LIBOR and extend the termination date from April 30, 2022, to June 7, 2026, with all other terms remaining the same.

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all advances under the revolving line of credit will become due on such date, or earlier in the event of a default.

No advances were outstanding under the agreement as of September 30, 2023.

No advances were outstanding under the agreement as of March 31, 2024.

Cash From Operating Activities

Operating activities generated $49.5 million of cash in the nine months ended September 30, 2023.

Operating activities generated $15.9 million of cash in the three months ended March 31, 2024.

Net income for this period was $4.0 million;

we also incurred depreciation, non-cash stock-based compensation expense, increase in deferred tax assets and amortization of intangibles of $26.3 million, $21.0 million, $10.0 million and $1.6 million, respectively.

Sources of cash were partially offset by a $14.8 million increase in inventories reflecting a slowdown in sales driven by factors described above, a $7.2 million increase in accounts receivable, a $5.0 million decrease in taxes payable and accrued liabilities primarily due to timing of customer rebate payments, a $2.9 million decrease in accounts payable (excluding payables related to property and equipment) due to timing of payments and a $0.8 million increase in prepaid expenses and other assets primarily due to federal income tax prepayments.

Operating activities generated $191.2 million of cash in the nine months ended September 30, 2022.

we also incurred depreciation, non-cash stock-based compensation expense, increase in deferred tax assets, accretion of discount on marketable securities, and amortization of intangibles of $8.7 million, $6.4 million, $1.3 million, $0.5 million and $0.5 million, respectively.

Sources of cash included a $2.2 million decrease in accounts receivable due to timing of receipts, a $1.3 million increase in accounts payable (excluding payables related to property and equipment) due to timing of payments and a $0.8 million decrease in prepaid expenses and other assets.

These sources of cash were partially offset by a $4.7 million increase in inventories due to lower demand during the quarter and a $1.7 million decrease in taxes payable and accrued liabilities.

Operating activities generated $16.6 million of cash in the three months ended March 31, 2023.

Net income for this period was $6.9 million;

we also incurred depreciation, non-cash stock-based compensation expense, amortization premiums on marketable securities and amortization of intangibles of $26.1 million, $15.7 million, $2.6 million and $1.9 million, respectively.

Sources of cash also included a $24.6 million decrease in accounts receivable due to decreased customer shipments and $8.4 million decrease in prepaid expenses and other assets.

These sources of cash were partially offset by a $20.8 million increase in inventories due to decreased demand during the year, a $5.9 million decrease in accounts payable (excluding payables related to property and equipment) due to timing of payments and a $3.9 million decrease in taxes payable and accrued liabilities.

we also incurred depreciation, non-cash stock-based compensation expense, amortization of intangibles and amortization premiums on marketable securities of $9.0 million, $7.4 million, $0.5 million and $0.4 million, respectively.

Sources of cash also included a $2.9 million increase in accounts payable (excluding payables

related to property and equipment) due to timing of payments and a $0.7 million decrease in accounts receivable due to decreased customer shipments.

These sources of cash were partially offset by a $2.3 million decrease in prepaid expenses and other assets, a $7.0 million increase in inventories due to lower demand during the quarter and a $0.7 million decrease in taxes payable and accrued liabilities.

Cash From Investing Activities

Our investing activities in the nine months ended September 30, 2023 resulted in a $25.9 million net use of cash, primarily consisting of $11.1 million used for purchases of marketable securities net of proceeds from sales and maturities, and $14.7 million used for purchases of property and equipment, primarily production-related machinery and equipment.

Our investing activities in the nine months ended September 30, 2022 generated $101.5 million of cash, primarily consisting of $133.8 million from sales and maturities of marketable securities, net of purchases, and by proceeds of $1.2 million from the sale of an office building, partially offset by $33.4 million for purchases of property and equipment, primarily production-related machinery and equipment.

Our investing activities in the three months ended March 31, 2024 resulted in a $0.1 million net use of cash, primarily consisting of $4.3 million used for purchases of property and equipment, (primarily production-related machinery and equipment) partially offset by $4.3 million from sales and maturities of marketable securities, net of purchases.

Our investing activities in the three months ended March 31, 2023 resulted in $18.3 million net use of cash, primarily consisting of $14.2 million used for purchases of marketable securities net of proceeds from maturities, and $4.1 million used for purchases of property and equipment (primarily production-related machinery and equipment).

Cash From Financing Activities

Our financing activities in the nine months ended September 30, 2023 resulted in a $34.3 million net use of cash, consisting of $32.7 million for the payment of dividends to stockholders and $7.8 million for the repurchase of our common stock, partially offset by $6.2 million from the issuance of shares through our employee stock purchase plan.

Our financing activities in the nine months ended September 30, 2022 resulted in a $317.4 million net use of cash, consisting of $292.3 million for the repurchase of our common stock and $31.2 million for the payment of dividends to stockholders, partially offset by $6.2 million from the issuance of shares through our employee stock purchase plan.

In January 2022, our board of directors declared dividends of $0.18 per share to be paid to stockholders of record at the end of each quarter in 2022.

Our financing activities in the three months ended March 31, 2024 resulted in a $23.3 million net use of cash, consisting of $14.6 million for the repurchase of our common stock and $11.4 million for the payment of dividends to stockholders, partially offset by proceeds of $2.7 million from the issuance of shares through our employee stock purchase plan.

Our financing activities in the three months ended March 31, 2023 resulted in a $9.5 million net use of cash, consisting of $1.7 million for the repurchase of our common stock and $10.9 million for the payment of dividends to stockholders, partially offset by proceeds of $3.1 million from the issuance of shares through our employee stock purchase plan.

In February 2023, our board of directors declared dividends of $0.19 per share to be paid to stockholders of record at the end of each quarter in 2023.

In October 2023, our board of directors raised the quarterly cash dividend again with the declaration of five cash dividends of $0.20 per share to be paid to stockholders of record at the end of the fourth quarter in 2023 (in lieu of the $0.19 per share announced in February 2023) and at the end of each quarter in 2024.

Dividend payouts of $10.9 million occurred on each of March 31, 2023, June 30, 2023 and September 29, 2023.

In October 2023, our board of directors raised the quarterly cash dividend with the declaration of five cash dividends of $0.20 per share to be paid to stockholders of record at the end of the fourth quarter in 2023 (in lieu of the $0.19 per share announced in February 2023) and at the end of each quarter in 2024.

A dividend payout of $11.4 million occurred on March 28, 2024.

The declaration of any future cash dividend is at the discretion of the board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that cash dividends are in the best interests of our stockholders.

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As of December 31, 2023, we had $26.0 million remaining under our stock-repurchase program .

In the nine months ended September 30, 2023, we repurchased approximately 104,000 shares of our common stock for $7.8 million, leaving $73.4 million remaining on the repurchase authorization as of September 30, 2023.

In the three months ended March 31, 2024, we repurchased approximately 207,000 shares of our common stock for $14.6 million, leaving $11.3 million remaining on the repurchase authorization as of March 31, 2024.

Authorization of future repurchase programs is at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors;

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Contractual Commitments

As of September 30, 2023 we had a contractual obligation related to income tax, which consisted primarily of unrecognized tax benefits of approximately $24.6 million and interest associated with those benefits of approximately $1.5 million.

As of March 31, 2024 we had a contractual obligation related to income tax, which consisted primarily of unrecognized tax benefits of approximately $16.4 million and interest associated with those benefits of approximately $0.3 million.

A portion of the tax obligation is classified as long-term income taxes payable and a portion is recorded in deferred tax assets in our condensed consolidated balance sheet.

As of September 30, 2023, there were no material changes in our contractual commitments from those reported in our Annual Report on Form 10-K for the year ended December 31, 2022.

As of March 31, 2024, there were no material changes in our contractual commitments from those reported in our Annual Report on Form 10-K for the year ended December 31, 2023.

Other Information

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federal taxes.

Accordingly, as of September 30, 2023, our worldwide cash and marketable securities are available to fund capital allocation needs, including capital and internal investments, acquisitions, stock repurchases and/or dividends without incurring additional U.S.

Accordingly, as of March 31, 2024, our worldwide cash and marketable securities are available to fund capital allocation needs, including capital and internal investments, acquisitions, stock repurchases and/or dividends without incurring additional U.S.

federal income taxes.

If our operating results deteriorate in future periods, either as a result of a decrease in customer demand, pricing and/or cost pressures, or for other reasons, our ability to generate positive cash flow from operations may be jeopardized.

If our operating results deteriorate in future periods, either as a result of a decrease in customer demand or pricing pressures from our customers or our competitors, or for other reasons, our ability to generate positive cash flow from operations may be jeopardized.

In that case, we may be forced to use our cash, cash equivalents and short-term investments, use our current financing or seek additional financing from third parties to fund our operations.

We believe that cash generated from operations, together with existing sources of liquidity, will satisfy our projected working capital and other cash requirements for at least the next 12 months, and we anticipate that we will continue to be able to fund liquidity requirements through cash provided by our operations for the foreseeable future.

However, we may experience reduced cash flow from operations as a result of the cyclical nature of our business along with other macroeconomic and geopolitical factors.

We believe that cash generated from operations, together with existing sources of liquidity, will satisfy our projected working capital and other cash requirements for at least the next 12 months.

Our uses of cash beyond the next 12 months will depend on many factors, including the general economic environment in which we operate and our ability to generate cash flow from operations, which are uncertain but include funding our operations and additional capital expenditures.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis