What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-13 compared with 2024-11-04 · 84 added, 108 removed, 132 unchanged (59% of the section changed)

4 unchanged sentences

Our fiscal year-end financial reporting periods are a 52- or 53-week fiscal year that ends on the Saturday closest to December 31.

Fiscal 2024 will have 52 weeks and fiscal 2023 had 52 weeks.

Our third quarter of fiscal 2024 ended September 28, 2024.

Our third quarter of fiscal 2023 ended September 30, 2023.

Fiscal 2025 will have 53 weeks with the extra week occurring in the first quarter of the year.

Fiscal 2024 had 52 weeks.

Our first quarter of fiscal 2025 ended April 5, 2025 and our first quarter of fiscal 2024 ended March 30, 2024.

Impact of Macroeconomic Conditions

In recent years, the global economic environment has experienced inflationary pressure, high interest rates, and geopolitical tension, and we have experienced declines in revenues as our customers slowed purchases to reduce existing inventories in a softening market.

While certain conditions have been improving during fiscal 2024, including deceleration of inflation and lowering of interest rates in certain geographies, there continues to be uncertainty regarding overall macroeconomic conditions, including increased geopolitical tensions, risk of recessions, and the effects of potential trade policies.

Although we have seen sequential improvements in revenues over the course of fiscal 2024, the extent of the continued impact, or any new impact, of macroeconomic conditions on our operational and financial performance will depend on future developments, their impact to the business of our suppliers and/or customers, and other items identified under the section titled “Risk Factors” below, all of which are uncertain and cannot be predicted.

There currently is increasing uncertainty regarding global macroeconomic conditions as a result of recent changes to U.S.

trade policies, including tariffs on foreign imports to the U.S.

The extent and duration of tariffs and the resulting impact on general economic conditions and our business are uncertain and depend on various factors, such as negotiations between the U.S.

and affected countries, the responses of other countries (such as the retaliatory tariffs imposed by China), exemptions or exclusions that may apply, and any additional cost which may be borne by us, our suppliers, and/or our end customers.

Additionally, increased geopolitical tensions, the risk of inflation and a recession, and the weakening U.S.

dollar, have added to the uncertainty.

The extent of the impact, or any new impact, of macroeconomic conditions on our operational and financial performance will depend on future developments, their impact to the businesses of our suppliers and/or customers, and other items identified under “Risk Factors” below, all of which are uncertain and cannot be predicted.

Any extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity, and financial condition.

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We group our products as Industrial & Commercial or Home & Life based on the target markets they address.

As a fabless semiconductor company, we rely on third-party semiconductor fabricators in Asia, and to a lesser extent the United States and Europe, to manufacture the silicon wafers that reflect our IC designs.

Each wafer contains numerous die, which are cut from the wafer to create a chip for an IC.

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Current Period Highlights

Revenues decreased $37.4 million in the recent quarter compared to the third quarter of fiscal 2023 due to decreased revenues from our Home & Life products and our Industrial & Commercial products.

Gross profit decreased $28.7 million during the same period primarily as a result of a decrease in revenues.

Gross margin decreased to 54.3% in the recent quarter compared to 58.4% in the third quarter of fiscal 2023, and increased compared to 52.7% in the second quarter of fiscal 2024, primarily due to variations in customer and product mix.

Operating expenses increased by $13.2 million in the recent quarter compared to the third quarter of fiscal 2023 primarily due to higher personnel-related costs.

Operating loss in the recent quarter was $29.7 million compared to operating income of $12.2 million in the third quarter of fiscal 2023.

Revenues increased $71.3 million in the recent quarter compared to the first quarter of fiscal 2024 due to increased revenues from our Home & Life products and our Industrial & Commercial products.

Gross profit increased $42.7 million during the same period primarily as a result of the increase in revenues.

Gross margin increased to 55.0% in the recent quarter compared to 51.8% in the first quarter of fiscal 2024 as our indirect and overhead expenses remained relatively constant but decreased as a percentage of revenues.

Operating expenses increased by $15.7 million in the recent quarter compared to the first quarter of fiscal 2024 primarily due to higher personnel-related costs.

Operating loss in the recent quarter was $32.1 million compared to operating loss of $59.1 million in the first quarter of fiscal 2024.

Refer to “Results of Operations” below for further discussion.

We ended the third quarter of fiscal 2024 with $369.7 million in cash, cash equivalents, and short-term investments.

Net cash used in operating activities was $24.0 million during the current year nine-month period.

Accounts receivable were $48.9 million at September 28, 2024, representing 26 days sales outstanding (“DSO”).

Inventory was $139.5 million at September 28, 2024, representing 165 days of inventory (“DOI”).

During the nine months ended September 28, 2024, we had no customer that represented more than 10% of our revenues.

We ended the first quarter of fiscal 2025 with $424.8 million in cash, cash equivalents, and short-term investments.

Net cash provided by operating activities was $48.1 million during the current year three-month period.

Accounts receivable were $52.1 million at April 5, 2025, representing 26 days sales outstanding (“DSO”).

Inventory was $83.4 million at April 5, 2025, representing 94 days of inventory (“DOI”).

During the three months ended April 5, 2025, we had no customer that represented more than 10% of our revenues.

In addition to direct sales to customers, some of our end customers purchase products indirectly from us through distributors and contract manufacturers.

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Although we actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer to such end customer as our customer.

Two of our distributors who sell to our customers, Arrow Electronics and Edom Technology, each represented more than 10% of our revenues during the nine months ended September 28, 2024.

The percentage of our revenues derived from outside of the United States was 93% during the nine months ended September 28, 2024.

Two of our distributors who sell to our customers, Arrow Electronics and Edom Technology, each represented more than 10% of our revenues during the three months ended April 5, 2025.

The percentage of our revenues derived from outside of the United States was 91% during the three months ended April 5, 2025.

All of our revenues to date have been denominated in U.S.

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Interest Expense.

Interest expense consists of interest on our short and long-term obligations, including our convertible senior notes that were previously outstanding and our credit facility.

Interest expense on our convertible senior notes included contractual interest and amortization of debt issuance costs.

Interest expense consists of interest on our short and long-term obligations, our credit facility, and amortization of debt issuance costs.

Provision for Income Taxes.

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See Note 10, Income Taxes , to the Condensed Consolidated Financial Statements.

Equity-method Loss.

Equity-method loss represents income or loss on our equity-method investment.

The following table sets forth our Condensed Consolidated Statements of Operations data as a percentage of revenues for the periods indicated:

Three Months Ended Nine Months Ended

September 28,

2024 September 30,

2023 September 28,

2024 September 30,

Three Months Ended

2025 March 30,

Revenues 100.0 % 100.0 %

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Operating expenses 73.1 107.4

Operating income (loss) (17.9) 6.0 (32.7) 7.0

Operating loss (18.1) (55.6)

Other income (expense):

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Interest expense (0.2) (0.5)

Income (loss) before income taxes (15.9) 6.8 (30.8) 8.6

Provision for income taxes 1.2 1.7 9.2 3.4

Equity-method loss 0.0 0.0 0.0 (0.2)

Net income (loss) (17.1) % 5.1 % (40.0) % 5.1 %

Three Months Ended Nine Months Ended

(in millions) September 28,

2024 September 30,

2023 Change %

Change September 28,

2024 September 30,

Loss before income taxes (16.1) (53.5)

Provision (benefit) for income taxes 1.1 (0.4)

Net loss (17.1) % (53.1) %

Three Months Ended

(in millions) April 5,

2025 March 30,

2024 Change %

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$ 177.7 $ 106.4 $ 71.3 67.0 %

The decrease in revenues in the recent three-month period was due to decreased revenues of $24.5 million from our Industrial & Commercial products and decreased revenues of $12.9 million from our Home & Life products.

The decrease in revenues in the recent nine-month period was due to decreased revenues of $187.2 million from our Industrial & Commercial products and decreased revenues of $90.1 million from our Home & Life products.

Revenues decreased in the recent three and nine-month periods as a result of decreases in average selling prices of our products and unit volumes.

The increase in revenues in the recent three-month period was due to increased revenues of $30.7 million from our Industrial & Commercial products and increased revenues of $40.6 million from our Home & Life products.

Revenues increased in the recent three-month periods as a result of increases in unit volumes and average selling prices of our products.

The average selling prices of our products may fluctuate significantly from period to period due to changes in product mix, pricing decisions and other factors.

In general, as our products become more mature, we expect to experience decreases in average selling prices.

Three Months Ended Nine Months Ended

(in millions) September 28,

2024 September 30,

2023 Change September 28,

2024 September 30,

Three Months Ended

(in millions) April 5,

2025 March 30,

Gross profit $ 97.8 $ 55.1 $ 42.7

Gross margin 55.0 % 51.8 % 3.2 %

Gross profit decreased during the recent three and nine-month periods primarily as a result of decreases in revenues in the periods.

Gross margin decreased primarily due to variations in customer and product mix, with the percentage of revenues attributed to direct customers increasing as compared to revenue from distributors in the three and nine-month periods.

Gross profit increased during the recent three-month period primarily as a result of increases in revenues in the periods.

Gross margin increased as our indirect and overhead expenses remained relatively constant but decreased as a percentage of revenues in the recent three-month period as a result of the increase in revenues.

We may experience variations in the average selling prices of certain of our products.

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Research and Development

Three Months Ended Nine Months Ended

(in millions) September 28,

2024 September 30,

2023 Change %

Change September 28,

2024 September 30,

Three Months Ended

(in millions) April 5,

2025 March 30,

2024 Change %

1 unchanged sentence

Percent of revenue 49.6 % 75.8 %

Research and development expense in the recent three-month period increased, with an increase of $3.2 million for personnel-related costs as a result of lower expenses in the prior year period due to cost containment measures, and an increase of $2.0 million in software expense, partially offset by a decrease of $0.8 million for amortization of intangible assets.

The decrease in research and development expense in the recent nine-month period was primarily due to decreases of $8.2 million for personnel-related expenses as a result of our restructuring activities and $2.1 million for technical services, partially offset by an increase of $6.2 million in software expense.

Research and development expense in the recent three-month period increased, with an increase of $12.1 million for personnel-related costs as a result of lower expenses in the prior year period due to cost containment measures, partially offset by $2.7 million of government incentives, and decreases for new product introduction and software expense and amortization of intangible assets of $1.0 million and $0.6 million respectively.

Selling, General and Administrative

Three Months Ended Nine Months Ended

(in millions) September 28,

2024 September 30,

2023 Change %

Change September 28,

2024 September 30,

Three Months Ended

(in millions) April 5,

2025 March 30,

2024 Change %

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Percent of revenue 23.4 % 31.5 %

The increase in selling, general and administrative expense in the recent three-month period was primarily due to a $9.3 million increase in personnel-related costs due to lower costs in the prior year period as a result of reduced stock compensation costs driven by a decline in expected achievement for certain performance-based awards, and cost containment efforts, partially offset by a $0.4 million decrease in occupancy costs.

The decrease in selling, general and administrative expense in the recent nine-month period was primarily due to a $2.8 million decrease in outside services, a $0.7 million decrease in occupancy costs, and a $0.4 million decrease in personnel-related costs.

The increase in selling, general and administrative expense in the recent three-month period was primarily due to a $7.8 million increase in personnel-related costs as a result of lower expenses in the prior year period due to cost containment measures.

Interest Income and Other, Net

Interest income and other, net for the three and nine months ended September 28, 2024 was $3.5 million and $9.0 million, respectively, compared to $2.9 million and $15.6 million for the three and nine months ended September 30, 2023,

respectively.

The increase in interest income and other, net in the recent three-month period was primarily due to higher interest rates earned on the investments.

The decrease in interest income and other, net in the recent nine-month period was primarily due to lower interest-bearing investment balances as a result of the sale of investments to fund the settlement of our 2025 convertible senior notes in the second quarter of fiscal 2023, stock repurchases in the first three quarters of fiscal 2023, and repayment of borrowing from our credit facility in the third quarter of fiscal 2023.

Interest income and other, net for the three months ended April 5, 2025 was $3.8 million compared to $2.7 million for the three months ended March 30, 2024.

The increase in interest income and other, net in the recent three-month period was primarily due to a higher cash and cash equivalents balance in the current year period as compared to the prior year period as well as higher interest rates earned on the investments.

Interest Expense

Interest expense for the three and nine months ended September 28, 2024 was $0.3 million and $1.1 million, respectively, compared to $1.4 million and $4.6 million for the three and nine months ended September 30, 2023, respectively.

The decrease was primarily due to the settlement of our 2025 convertible senior notes in the second quarter of fiscal 2023.

Provision for Income Taxes

Three Months Ended Nine Months Ended

(in millions) September 28,

2024 September 30,

2023 Change September 28,

2024 September 30,

Interest expense for the three months ended April 5, 2025 was $0.3 million, compared to $0.5 million for the three months ended March 30, 2024.

The decrease was primarily due to a balance outstanding on the revolving credit facility for a portion of the prior year period.

Provision for Income Taxes

Three Months Ended

(in millions) April 5,

2025 March 30,

Provision (benefit) for income taxes $ 1.9 $ (0.4) $ 2.3

Effective tax rate (6.6) % 0.7 %

The change in the provision for income taxes for the three and nine months ended September 28, 2024 is primarily due to the establishment of a valuation allowance against certain of our U.S.

and Singapore deferred tax assets during the three months ended June 29, 2024.

The change in the provision for income taxes for the three months ended April 5, 2025 is primarily due to tax expense associated with the increase in the U.S.

and Singapore valuation allowance in the three months ended April 5, 2025, whereas the valuation allowance had not yet been established in the three months ended March 30, 2024.

Because of the valuation allowance, we are unable to recognize the full tax benefit of the pre-tax losses incurred in those jurisdictions in the current year.

A valuation allowance is required to be established when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

There is a need for the valuation allowance due to a forecasted three-year cumulative pre-tax loss for the current and two preceding years in conjunction with the downturn in the semiconductor industry.

We identified a need for the valuation allowance due to the presence of significant negative evidence, including recent operating losses and uncertainty around the timing of recovery in economic conditions within both the semiconductor industry and the broader economy.

We intend to maintain the valuation allowance until our ability to forecast sufficient future sources of taxable income is reestablished.

Equity-method Loss

Equity-method loss for the three and nine months ended September 30, 2023 was $0.1 million and $1.2 million, respectively.

Our equity-method investment was sold in the fourth quarter of fiscal 2023.

Liquidity and Capital Resources

Our principal sources of liquidity as of September 28, 2024 consisted of $369.7 million in cash, cash equivalents and short-term investments, of which $183.8 million was held by our U.S.

Our principal sources of liquidity as of April 5, 2025 consisted of $424.8 million in cash, cash equivalents and short-term investments, of which $204.1 million was held by our U.S.

The remaining balance was held by our foreign subsidiaries.

Our cash equivalents and short-term investments consisted of government debt securities, which include municipal bonds and U.S.

Our cash equivalents and short-term investments consisted of government debt securities, which include U.S.

government securities;

corporate debt securities, which include asset-backed securities, corporate bonds and Yankee bonds;

corporate debt securities, which include asset-backed securities and corporate bonds;

and money market funds.

Operating Activities

Net cash used in operating activities was $24.0 million during the nine months ended September 28, 2024, compared to $48.9 million during the nine months ended September 30, 2023.

Operating cash flows during the nine months ended September 28, 2024 reflect our net loss of $167.2 million, adjustments of $111.4 million for depreciation, amortization, stock-based compensation, and deferred income taxes, and a net cash inflow of $31.8 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $48.9 million at September 28, 2024 from $29.3 million at December 30, 2023.

The increase in accounts receivable resulted primarily from normal variations in the timing of collections and billings.

Our DSO decreased to 26 days at September 28, 2024 from 30 days at December 30, 2023.

Inventory decreased to $139.5 million at September 28, 2024 from $194.3 million at December 30, 2023.

Our inventory levels will vary based on the availability of supply and the impact of variations between forecasted demand used

for purchasing inventory and actual demand.

Our DOI was 165 days at September 28, 2024 and 407 days at December 30, 2023.

Net cash provided by operating activities was $48.1 million during the three months ended April 5, 2025, compared to net cash used of $71.8 million during the three months ended March 30, 2024.

Operating cash flows during the three months ended April 5, 2025 reflect our net loss of $30.5 million, adjustments of $29.9 million for depreciation, amortization, stock-based compensation, and deferred income taxes, and a net cash inflow of $48.7 million due to changes in our operating assets and liabilities.

Accounts receivable decreased to $52.1 million at April 5, 2025 from $54.5 million at December 28, 2024.

The decrease in accounts receivable resulted primarily from normal variations in the timing of collections and billings.

Our DSO decreased to 26 days at April 5, 2025 from 29 days at December 28, 2024.

Inventory decreased to $83.4 million at April 5, 2025 from $105.6 million at December 28, 2024.

Our inventory levels will vary based on the availability of supply and the impact of variations between forecasted demand used for purchasing inventory and actual demand.

Our DOI was 94 days at April 5, 2025 and 125 days at December 28, 2024.

Investing Activities

Net cash provided by investing activities was $151.3 million during the nine months ended September 28, 2024, compared to $426.4 million during the nine months ended September 30, 2023.

The decrease in cash inflows was principally due to a decrease in cash provided by net purchases, sales, and maturities of marketable securities of $298.6 million in the current period.

Net cash used in investing activities was $3.9 million during the three months ended April 5, 2025, compared to net cash provided of $81.5 million during the three months ended March 30, 2024.

The decrease in cash inflows was principally due to a decrease in cash provided by net purchases, sales, and maturities of marketable securities of $70.2 million in the current period, and proceeds received in the prior year of $12.4 million for the sale of an equity investment.

Financing Activities

Net cash used in financing activities was $51.7 million during the nine months ended September 28, 2024, compared to net cash used of $717.5 million during the nine months ended September 30, 2023.

The decrease in cash outflows was principally due to $571.2 million in payments on debt and $217.1 million for repurchases of common stock, partially offset by $80.0 million in proceeds from our revolving line of credit in the prior year period.

As of September 28, 2024, we had a $400 million revolving credit facility.

Net cash used in financing activities was $1.0 million during the three months ended April 5, 2025, compared to $45.7 million during the three months ended March 30, 2024.

The decrease in cash outflows was principally due to a $45.0 million repayment of borrowings under the revolving credit facility in the prior year period.

As of April 5, 2025, we had a $400 million revolving credit facility.

We have an option to increase the size of the borrowing capacity of the revolving credit facility by up to the greater of an aggregate of $250 million and 100% of EBITDA, plus an amount that would not cause a secured net leverage ratio to exceed 3.50 to 1.00, subject to certain conditions.

As of September 28, 2024, no amounts were outstanding on the revolving credit facility.

We were granted a waiver of compliance for the minimum interest coverage ratio through March 29, 2025.

As of April 5, 2025, no amounts were outstanding on the revolving credit facility.

We were granted a waiver of compliance for the minimum interest coverage ratio through October 4, 2025.

In the event we are not able to achieve compliance by the end of the waiver period, we may need to obtain an additional waiver in order to access the revolving credit facility.

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Our investment portfolio includes cash, cash equivalents and short-term investments.

Our main investment objectives are the preservation of investment capital and the maximization of after-tax returns on our investment portfolio.

Our main investment objective is the preservation of investment capital.

Our interest income is sensitive to changes in the general level of U.S.

interest rates.

A 100 basis point decline in yield on our investment portfolio holdings as of September 28, 2024 would decrease our future annual interest income by approximately $2.9 million.

A 100 basis point decline in yield on our investment portfolio holdings as of April 5, 2025 would decrease our future annual interest income by approximately $3.4 million.

We believe that our investment policy, which defines the duration, concentration, and minimum credit quality of the allowable investments, meets our investment objectives.

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The interest rate on the credit facility consists of a variable-rate of interest and an applicable margin.

While we have drawn

from the credit facility in the past, we have no borrowings as of September 28, 2024.

While we have drawn from the credit facility in the past, we have no borrowings as of April 5, 2025.

If we borrow from the credit facility in the future, we will again be exposed to interest rate fluctuations.

5 unchanged sentences

dollars are recorded in the Condensed Consolidated Statements of Operations.

We use foreign currency forward contracts to manage exposure to foreign exchange risk.

We may use foreign currency forward contracts to manage exposure to foreign exchange risk.

Gains and losses on foreign currency forward contracts are recognized in earnings in the same period during which the hedged transaction is recognized.

1 unchanged sentence

Our website address is www.silabs.com.

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the investor relations page of our website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).

practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).

Our website and the information contained therein or connected thereto are not intended to be incorporated into this Quarterly Report on Form 10-Q.

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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