What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-27 compared with 2021-07-28 · 72 added, 66 removed, 231 unchanged (37% of the section changed)

6 unchanged sentences

Fiscal 2020 had 53 weeks with the extra week occurring in the first quarter of the year.

Our second quarter of fiscal 2021 ended July 3, 2021.

Our second quarter of fiscal 2020 ended July 4, 2020.

Our third quarter of fiscal 2021 ended October 2, 2021.

Our third quarter of fiscal 2020 ended October 3, 2020.

Impact of COVID-19

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However, rapid changes in our markets and across our product areas make it difficult for us to accurately estimate the impact of seasonal factors on our business.

Discontinued Operation

Discontinued Operations

On April 22, 2021, we entered into an Asset Purchase Agreement pursuant to which Skyworks Solutions agreed to acquire certain assets, rights, and properties, and assume certain liabilities, comprising our infrastructure and automotive business for $2.75 billion in cash.

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Current Period Highlights of Continuing Operations

Revenues increased $55.1 million in the recent quarter compared to the second quarter of fiscal 2020 primarily due to increased demand for our products.

Revenues increased $52.1 million in the recent quarter compared to the third quarter of fiscal 2020 primarily due to increased demand for our products.

Gross profit increased $34.0 million during the same period due primarily to increased product sales.

Gross margin decreased to 56.8% in the recent quarter compared to 58.2% in the second quarter of fiscal 2020 due primarily to variations in product mix.

Operating expenses increased by $9.4 million in the recent quarter compared to the second quarter of fiscal 2020 due primarily to increased personnel-related expenses, new product introduction costs and amortization of intangible assets.

Operating loss in the recent quarter was $11.5 million compared to $31.8 million in the second quarter of fiscal 2020.

We ended the second quarter with $617.3 million in cash, cash equivalents and short-term investments.

Net cash provided by operating activities was $5.7 million during the recent six-month period.

Accounts receivable was $99.5 million at July 3, 2021, representing 53 days sales outstanding (DSO).

Inventory was $52.3 million at July 3, 2021, representing 64 days of inventory (DOI).

In the recent six-month period, we repurchased 0.1 million shares of our common stock for $19.0 million.

Gross margin increased to 59.2% in the recent quarter compared to 56.9% in the third quarter of fiscal 2020 due primarily to variations in product mix.

Operating expenses increased by $19.7 million in the recent quarter compared to the third quarter of fiscal 2020 due primarily to increased personnel-related expenses and new product introduction costs.

Operating loss in the recent quarter was $9.3 million compared to $23.6 million in the third quarter of fiscal 2020.

We ended the third quarter with $2.7 billion in cash, cash equivalents and short-term investments.

Net cash provided by operating activities was $48.2 million during the recent nine-month period.

Accounts receivable were $72.6 million at October 2, 2021, representing 35 days sales outstanding (DSO).

Inventory was $59.1 million at October 2, 2021, representing 71 days of inventory (DOI).

In the third quarter, we completed a tender offer in which we repurchased 4.0 million shares of our common stock for an aggregate cost of $640.7 million.

Through acquisitions and internal development efforts, we have continued to diversify our portfolio and introduce new products and solutions with added functionality and integration.

In the first six months of fiscal 2021, we introduced a fully integrated, certified Wi-SUN® solution simplifying Low Power Wide Area Network (LPWAN) deployment for smart cities;

In the first nine months of fiscal 2021, we introduced Custom Part Manufacturing Service (CPMS) to support IoT companies with the implementation of ‘Zero Trust’ security architectures to meet emerging cybersecurity standards;

the Unify Software Development Kit (SDK), which provides the common building blocks for connectivity across IoT ecosystems;

new sub-1-GHz SoCs delivering wireless solutions that combine long-range RF and energy efficiency with certified Arm® PSA Level 3 security;

a fully integrated, certified Wi-SUN® solution simplifying Low Power Wide Area Network (LPWAN) deployment for smart cities;

wireless solutions for development of Matter end products that support Thread, Wi-Fi, and Bluetooth protocols;

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We plan to continue introducing products that increase the content we provide for existing applications, thereby enabling us to serve markets we do not currently address and expand our total available market opportunity.

During the six months ended July 3, 2021, we had no customer that represented more than 10% of our revenues.

During the nine months ended October 2, 2021, 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.

Three of our distributors who sell to our customers, Arrow Electronics, Edom Technology and Sekorm, each represented more than 10% of our revenues during the six months ended July 3, 2021.

The percentage of our revenues derived from outside of the United States was 89% during the six months ended July 3, 2021.

Three of our distributors who sell to our customers, Arrow Electronics, Edom Technology and Sekorm, each represented more than 10% of our revenues during the nine months ended October 2, 2021.

The percentage of our revenues derived from outside of the United States was 87% during the nine months ended October 2, 2021.

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

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Results of Operations

The following describes the line items set forth in our Condensed Consolidated Statements of Operations:

The following describes the line items set forth in our Condensed Consolidated Statements of Income:

Revenues are generated predominately by sales of our products.

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Provision (benefit) for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences.

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

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

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenues

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Income from discontinued operations, net of income taxes

Net income (loss)

Three Months Ended

Six Months Ended

Nine Months Ended

(in millions)

The change in revenues in the recent three and six month periods was due to increased demand for our IoT products.

Unit volumes of our products increased by 50.7% while average selling prices decreased by 1.1% compared to the three months ended July 4, 2020.

Unit volumes of our products increased by 46.1% while average selling prices decreased by 2.9% compared to the six months ended July 4, 2020.

The change in revenues in the recent three and nine month periods was due to increased demand for our IoT products.

Unit volumes of our products increased by 31.9% during the three months ended October 2, 2021 while average selling prices increased by 4.8% compared to the three months ended October 3, 2020.

Unit volumes of our products increased by 40.9% during the three months ended October 2, 2021 while average selling prices decreased by 0.2% compared to the nine months ended October 3, 2020.

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.

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

(in millions)

Gross profit increased during the recent three and six month periods due primarily to increased product sales.

Gross margin decreased during the recent three and six month periods primarily due to variations in product mix.

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

This creates downward pressure on gross margin and may be offset to the extent we are able to introduce higher margin new products and gain market share with our products;

Gross profit increased during the recent three and nine month periods due primarily to increased product sales.

Gross margin increased during the recent three-month period primarily due to variations in product mix.

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

Declines in average selling prices create downward pressure on gross margin and may be offset to the extent we are able to introduce higher margin new products and gain market share with our products;

reduce costs of existing products through improved design;

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Three Months Ended

Six Months Ended

Nine Months Ended

(in millions)

1 unchanged sentence

Percent of revenue

The increase in research and development expense in the recent three and six month periods was primarily due to increases of $3.4 million and $5.6 million, respectively, for personnel-related expenses, $2.2 million and $4.0 million, respectively, for new product development costs, and $0.2 million and $1.7 million, respectively, for the amortization of intangible assets.

We expect that research and development expense will increase in absolute dollars in the third quarter of fiscal 2021.

The increase in research and development expense in the recent three-month period was primarily due to an increase of $7.8 million for personnel-related expenses and $4.7 million for new product development costs.

The increase in research and development expense in the recent nine-month period was primarily due to an increase of $13.3 million for personnel-related expenses, $8.9 million for new product development costs and $1.4 million for the amortization of intangible assets.

We expect that research and development expense will remain relatively stable in absolute dollars in the fourth quarter of fiscal 2021.

Selling, General and Administrative

Three Months Ended

Six Months Ended

Nine Months Ended

(in millions)

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The increase in selling, general and administrative expense in the recent three-month period was primarily due to an increase of $5.3 million for personnel-related expenses.

The increase in selling, general and administrative expense in the recent six-month period was primarily due to an increase of $2.4 million for personnel-related expenses offset in part by a decrease of $1.6 million in acquisition-related costs.

We expect that selling, general and administrative expense will increase in absolute dollars in the third quarter of fiscal 2021.

The increase in selling, general and administrative expense in the recent nine-month period was primarily due to an increase of $7.8 million for personnel-related expenses offset in part by a decrease of $1.5 million in acquisition-related costs.

We expect that selling, general and administrative expense will increase in absolute dollars in the fourth quarter of fiscal 2021.

Interest Income and Other, Net

Interest income and other, net for the three and six months ended July 3, 2021 was $0.6 million and $3.5 million, respectively, compared to $3.3 million and $6.5 million for the three and six months ended July 4, 2020, respectively.

The decrease in interest income and other, net in the recent three and six month periods was primarily due to lower interest rates on the underlying investment instruments.

Interest income and other, net for the three and nine months ended October 2, 2021 was $5.5 million and $9.0 million, respectively, compared to $2.0 million and $8.6 million for the three and nine months ended October 3, 2020, respectively.

The increase in interest income and other, net in the recent three month period was primarily due to increased income earned in connection with an equity investment.

Interest Expense

Interest expense for the three and six months ended July 3, 2021 was $6.5 million and $17.8 million, respectively, compared to $11.8 million and $17.3 million for the three and six months ended July 4, 2020, respectively.

The decrease in interest expense in the recent three-month period was primarily due to a loss recorded on the early extinguishment of a portion of the 2022 notes recorded in the prior three-month period.

Interest expense was generally consistent for the three and nine months ended October 2, 2021 and was $6.6 million and $24.4 million, respectively, compared to $8.6 million and $25.9 million for the three and nine months ended October 3, 2020, respectively.

Provision (Benefit) for Income Taxes

Three Months Ended

Six Months Ended

Nine Months Ended

(in millions)

1 unchanged sentence

Effective tax rate

The increase in the provision for income taxes for the three and six months ended July 3, 2021 as compared to the prior periods was primarily due to the adoption of ASU 2019-12, Simplifying the Accounting for Income Taxes, during the six months ended July 3, 2021 and the required allocation of $9.6 million of tax benefits from continuing operations to discontinued operations in the fiscal 2021 periods.

The increase in the provision for income taxes for the three and nine months ended October 2, 2021 as compared to the prior periods was primarily due to the reallocation of income tax benefit from continuing operations to discontinued operations under ASU 2019-12 and an increase in the beginning of year valuation allowance on state attribute carryforwards as a result of changes in state tax estimates primarily due to the divestiture of the infrastructure and automotive business to Skyworks Solutions.

Additionally, an estimated tax on the gain from the divestiture of the infrastructure and automotive business to Skyworks Solutions of $346.9 million was recorded in discontinued operations for the period, as well as additional tax benefit associated with discontinued operations of $(13.7) million for the three-month period ended October 2, 2021.

Income from discontinued operations, net of income taxes

Three Months Ended

Six Months Ended

Nine Months Ended

(in millions)

Income from discontinued operations, net of income taxes

The increase in income from discontinued operations, net of income taxes in the recent three and six month periods was primarily due to decreases in the provision for income taxes in the current periods.

The increase in income from discontinued operations, net of income taxes in the recent three and nine month periods was primarily due to a gain on sale of $2.1 billion, net of tax, in the current periods.

See Note 2, Discontinued Operations , to the Condensed Consolidated Financial Statements for additional information.

Business Outlook

The following represents our business outlook for the third quarter of fiscal 2021.

The following represents our business outlook for the fourth quarter of fiscal 2021.

Income Statement Item

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Effective tax rate

Diluted loss per share

Diluted earnings (loss) per share

$(0.41) to $(0.31)

Liquidity and Capital Resources

Our principal sources of liquidity as of July 3, 2021 consisted of $617.3 million in cash, cash equivalents and short-term investments, of which approximately $430.6 million was held by our U.S.

Our principal sources of liquidity as of October 2, 2021 consisted of $2.7 billion in cash, cash equivalents and short-term investments, of which approximately $1.3 billion was held by our U.S.

The remaining balance was held by our foreign subsidiaries.

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Operating Activities

Net cash provided by operating activities was $5.7 million during the six months ended July 3, 2021, compared to net cash provided of $28.1 million during the six months ended July 4, 2020.

Operating cash flows during the six months ended July 3, 2021 reflect our net income of $33.4 million, adjustments of $(13.8) million for income from discontinued operations, depreciation, amortization, stock-based compensation and deferred income taxes, and a net cash outflow of $13.9 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $99.5 million at July 3, 2021 from $95.2 million at January 2, 2021.

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

Our average DSO was 53 days at July 3, 2021 and 59 days at January 2, 2021.

Inventory increased to $52.3 million at July 3, 2021 from $47.9 million at January 2, 2021.

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

Our DOI was 64 days at July 3, 2021 and 70 days at January 2, 2021.

Net cash provided by operating activities was $48.2 million during the nine months ended October 2, 2021, compared to net cash provided of $20.4 million during the nine months ended October 3, 2020.

Operating cash flows during the nine months ended October 2, 2021 reflect our net income of $2.1 billion, adjustments of $2.1 billion for income from discontinued operations, depreciation, amortization, stock-based compensation and deferred income taxes, and a net cash outflow of $10.3 million due to changes in our operating assets and liabilities.

Accounts receivable decreased to $72.6 million at October 2, 2021 from $95.2 million at January 2, 2021.

The decrease in accounts receivable resulted primarily from lower billings as a result of the divestiture of our infrastructure and automotive business as well as normal variations in the timing of collections and billings.

Our average DSO was 35 days at October 2, 2021 and January 2, 2021.

Inventory increased to $59.1 million at October 2, 2021 from $47.9 million at January 2, 2021.

The increase in inventory was primarily due to increased revenues in the recent three-month period.

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

Our DOI was 71 days at October 2, 2021 and 70 days at January 2, 2021.

Investing Activities

Net cash provided by investing activities was $194.9 million during the six months ended July 3, 2021, compared to net cash used of $270.9 million during the six months ended July 4, 2020.

The increase in cash inflows was principally due to a cash payment of $316.8 million for the acquisition of the Wi-Fi and Bluetooth business of Redpine Signals in the prior period and an increase in cash inflows of $150.5 million from net sales and purchases of marketable securities in the current period.

Net cash used in investing activities was $864.2 million during the nine months ended October 2, 2021, compared to net cash used of $322.3 million during the nine months ended October 3, 2020.

The increase in cash outflows was principally due to an increase in cash outflows of $853.2 million from net purchases and sales of marketable securities in the current period, offset by a cash payment of $316.8 million for the acquisition of the Wi-Fi and Bluetooth business of Redpine Signals in the prior period.

Financing Activities

Net cash used in financing activities was $170.9 million during the six months ended July 3, 2021, compared to net cash provided of $222.3 million during the six months ended July 4, 2020.

The decrease in cash inflows was principally due to $845.0 million in proceeds from the issuance of debt in the prior period, offset by a decrease of $456.9 million in payments on debt in the current period.

Net cash used in financing activities was $841.7 million during the nine months ended October 2, 2021, compared to net cash provided of $200.6 million during the nine months ended October 3, 2020.

The increase in cash outflows was principally due to $845.0 million in proceeds from the issuance of debt in the prior period and an increase of $672.1 million for repurchases of our common stock in the current period, offset by a decrease of $478.2 million in payments on debt in the current period.

During the nine months ended October 2, 2021, we completed a tender offer in which we repurchased 4.0 million shares for an aggregate cost of $640.7 million.

Discontinued Operations

Net cash provided by discontinued operations was $70.7 million during the six months ended July 3, 2021, compared to net cash provided of $71.1 million during the six months ended July 4, 2020.

As of July 3, 2021, our debt included $535 million principal amount of convertible senior notes (the “2025 Notes”).

Net cash provided by discontinued operations was $2.8 billion during the nine months ended October 2, 2021, compared to net cash provided of $104.5 million during the nine months ended October 3, 2020.

The increase in cash inflows was principally due to $2.75 billion in proceeds from the sale of our infrastructure and automotive business.

As of October 2, 2021, our debt included $535 million principal amount of convertible senior notes (the “2025 Notes”).

We also had an undrawn $400 million revolving credit facility.

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We may adjust assumptions used to estimate consideration periodically based on analysis of prior estimates.

Stock-based compensation - We recognize the fair-value of stock-based compensation transactions in the Consolidated Statements of Operations.

Stock-based compensation - We recognize the fair-value of stock-based compensation transactions in the Consolidated Statements of Income.

The fair value of our full-value stock awards (with the exception of market-based performance awards) equals the fair market value of our stock on the date of grant.

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interest rates.

Our investment portfolio holdings as July 3, 2021 yielded less than 100 basis points.

A decline in yield to zero basis points on our investment portfolio holdings as of July 3, 2021 would decrease our future annual interest income by approximately $2.7 million.

Our investment portfolio holdings as October 2, 2021 yielded less than 100 basis points.

A decline in yield to zero basis points on our investment portfolio holdings as of October 2, 2021 would decrease our future annual interest income by approximately $4.1 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 July 3, 2021.

While we have drawn from the credit facility in the past, we have no borrowings as of October 2, 2021.

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

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Accordingly, gains and losses resulting from remeasuring transactions denominated in currencies other than U.S.

dollars are recorded in the Consolidated Statements of Operations.

dollars are recorded in the Consolidated Statements of Income.

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

1 unchanged sentence

Investments in Auction-rate Securities

As of July 3, 2021, we held $6.0 million par value auction-rate securities, all of which have experienced failed auctions because sell orders exceeded buy orders.

As of October 2, 2021, we held $6.0 million par value auction-rate securities, all of which have experienced failed auctions because sell orders exceeded buy orders.

We are unable to predict if these funds will become available before their maturity dates.

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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