What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-27 compared with 2022-04-27 · 70 added, 62 removed, 235 unchanged (36% of the section changed)

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Please see the “Cautionary Statement” above and “Risk Factors” below for discussions of the uncertainties, risks and assumptions associated with these statements.

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

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 2022 will have 52 weeks and fiscal 2021 had 52 weeks.

Our first quarter of fiscal 2022 ended April 2, 2022.

Our first quarter of fiscal 2021 ended April 3, 2021.

Our second quarter of fiscal 2022 ended July 2, 2022.

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

Impact of COVID-19

A new strain of novel coronavirus which causes a severe respiratory disease (“COVID-19”) was identified in 2019, and subsequently declared a worldwide pandemic by the World Health Organization.

The COVID-19 pandemic has impacted the global economy, disrupting our operations, global supply chains and the operations of our customers.

We implemented a response plan and continued operations while largely transitioning our global workforce to a remote work model.

We have recently reopened offices in all of our locations, subject to local regulations.

The third parties that perform our semiconductor manufacturing, assembly, packaging and testing have generally remained operational.

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Discontinued Operations

On April 22, 2021, we entered into an Asset Purchase Agreement to sell our infrastructure and automotive business to Skyworks Solutions, Inc.

On July 26, 2021, we sold our infrastructure and automotive business to Skyworks Solutions, Inc.

for $2.75 billion in cash.

The sale was completed on July 26, 2021.

The prior year comparable period results of operations of the sold component have been presented in the accompanying condensed consolidated financial statements as discontinued operations and, therefore, are excluded from the following discussion of the results of our continuing operations.

Current Period Highlights of Continuing Operations

Revenues increased $75.9 million in the recent quarter compared to the first quarter of fiscal 2021 due to increased revenues from our Industrial & Commercial products and our Home & Life products.

Revenues increased $93.7 million in the recent quarter compared to the second quarter of fiscal 2021 due to increased revenues from both our Industrial & Commercial products and our Home & Life products.

Gross profit increased $67.6 million during the same period due primarily to increased product sales.

Gross margin increased to 66.6% in the recent quarter compared to 58.1% in the first quarter of fiscal 2021 due to variations in product mix and increases in the price of our products.

Operating expenses increased by $15.7 million in the recent quarter compared to the first quarter of fiscal 2021 due primarily to increased personnel-related expenses.

Operating income (loss) in the recent quarter was $33.6 million compared to $(14.7) million in the first quarter of fiscal 2021.

We ended the first quarter with $1.9 billion in cash, cash equivalents and short-term investments.

Net cash provided by operating activities was $85.2 million during the recent three-month period.

Accounts receivable were $79.2 million at April 2, 2022, representing 30 days sales outstanding (DSO).

Inventory was $55.5 million at April 2, 2022, representing 64 days of inventory (DOI).

In the first quarter, we acquired 1.4 million shares of our common stock for $163.8 million.

Gross margin increased to 62.3% in the recent quarter compared to 56.8% in the second quarter of fiscal 2021 due to variations in product mix and increases in the price of our products.

Operating expenses increased by $24.7 million in the recent quarter compared to the second quarter of fiscal 2021 due primarily to increased personnel-related expenses, new product introduction costs and sales commissions.

Operating income (loss) in the recent quarter was $31.4 million compared to $(11.5) million in the second quarter of fiscal 2021.

We ended the second quarter with $1.5 billion in cash, cash equivalents and short-term investments.

Net cash provided by operating activities was $83.4 million during the recent six-month period.

Accounts receivable were $72.1 million at July 2, 2022, representing 25 days sales outstanding (DSO).

Inventory was $74.0 million at July 2, 2022, representing 67 days of inventory (DOI).

In the second quarter, we acquired 3.1 million shares of our common stock for $436.4 million.

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

In the first three months of fiscal 2022, we introduced a family of 2.4 GHz wireless SoCs for Bluetooth® and multi-protocol operations with a built-in AI and Machine Learning (ML) accelerator, improving performance for AI and ML applications on battery-powered edge devices.

In the first six months of fiscal 2022, we introduced a Bluetooth® Location Services solution using accurate, low-power Bluetooth devices to simplify Angle of Arrival (AoA) and Angle of Departure (AoD) location services;

and a family of 2.4 GHz wireless SoCs for Bluetooth and multi-protocol operations with a built-in AI and Machine Learning (ML) accelerator, improving performance for AI and ML applications on battery-powered edge devices.

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 three months ended April 2, 2022, we had no customer that represented more than 10% of our revenues.

During the six months ended July 2, 2022, 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 three months ended April 2, 2022.

The percentage of our revenues derived from outside of the United States was 84% during the three months ended April 2, 2022.

Two of our distributors who sell to our customers, Arrow Electronics and Edom Technology, each represented more than 10% of our revenues during the six months ended July 2, 2022.

The percentage of our revenues derived from outside of the United States was 85% during the six months ended July 2, 2022.

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

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Three Months Ended

Six Months Ended

Cost of revenues

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Three Months Ended

Six Months Ended

(in millions)

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The increase in revenues in the recent three-month period was due to increased revenues of $54.8 million from our Industrial & Commercial products and $38.9 million from our Home & Life products.

Unit volumes of our products increased slightly during the three months ended April 2, 2022 while average selling prices increased substantially compared to the three months ended April 3, 2021.

The increase in revenues in the recent six-month period was due to increased revenues of $102.7 million from our Industrial & Commercial products and $67.0 million from our Home & Life products.

Unit volumes of our products increased during the three and six months ended July 2, 2022 while average selling prices increased substantially compared to the three and six months ended July 3, 2021.

See Note 9, Revenues , to the Condensed Consolidated Financial Statements for additional information.

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.

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Three Months Ended

Six Months Ended

(in millions)

Gross profit increased during the recent three-month period due primarily to increased product sales.

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

The change in gross profit in the recent period was due to increases in gross profit for our Industrial & Commercial products and our Home & Life products.

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Increased product demand and production capacity constraints have increased the selling price and costs of our products, and has resulted in period-to-period fluctuations in our gross margin.

We expect the prices we pay for inventory to increase in future periods and that this will reduce our gross margins.

We expect the prices we pay for inventory to continue to increase in future periods and that this will reduce our gross margins.

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

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Three Months Ended

Six Months Ended

(in millions)

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Percent of revenue

The increase in research and development expense in the recent three-month period was primarily due to an increase of $12.7 million for personnel-related expenses.

The decrease in research and development expense as a percent of revenues in the current period was due to our increased revenues.

We expect that research and development expense will increase in absolute dollars in the second quarter of fiscal 2022.

The increase in research and development expense in the three and six month periods was primarily due to increases of $13.6 million and $26.3 million, respectively, for personnel-related expenses, and $3.8 million and $2.9 million, respectively, for new product introduction costs.

The decrease in research and development expense as a percent of revenues in the current periods was due to our increased revenues.

We expect that research and development expense will increase in absolute dollars in the third quarter of fiscal 2022.

Selling, General and Administrative

Three Months Ended

Six Months Ended

(in millions)

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Percent of revenue

The increase in selling, general and administrative expense in the recent three-month period was primarily due to an increase of $2.1 million for personnel-related expenses.

The decrease in selling, general and administrative expense as a percent of revenues in the current period was due to our increased revenues.

We expect that selling, general and administrative expense will increase in absolute dollars in the second quarter of fiscal 2022.

The increase in selling, general and administrative expense in the three and six month periods was primarily due to increases of $4.3 million and $6.4 million, respectively, for personnel-related expenses, and $0.6 million and $1.2 million, respectively, for sales commissions.

The decrease in selling, general and administrative expense as a percent of revenues in the current periods was due to our increased revenues.

We expect that selling, general and administrative expense will increase in absolute dollars in the third quarter of fiscal 2022.

Interest Income and Other, Net

Interest income and other, net for the three months ended April 2, 2022 was $1.5 million compared to $1.1 million for the three months ended April 3, 2021.

Interest income and other, net for the three and six months ended July 2, 2022 was $3.4 million and $4.9 million, respectively, compared to $0.5 million and $1.6 million for the three and six months ended July 3, 2021, respectively.

The increase in interest income and other, net in the recent periods was primarily due to increased interest income earned as a result of higher investment balances and higher market interest rates.

Interest Expense

Interest expense for the three months ended April 2, 2022 was $1.7 million compared to $11.3 million for the three months ended April 3, 2021.

The decrease in interest expense in the recent three-month period was primarily due to a decrease of $5.9 million in amortization of debt discount as a result of our adoption of ASU 2020-06 in the current period and a loss of $3.4 million recorded on the early extinguishment of the remaining 2022 Notes in the prior period.

Interest expense for the three and six months ended July 2, 2022 was $1.7 million and $3.3 million, respectively, compared to $6.5 million and $17.8 million for the three and six months ended July 3, 2021, respectively.

The decrease in interest expense in the recent three-month period was primarily due to a decrease of $5.0 million in amortization of debt discount as a result of our adoption of ASU 2020-06 in fiscal 2022.

The decrease in interest expense in the recent six-month period was primarily due to a decrease of $10.9 million in amortization of debt discount in the current period and a loss of $3.4 million recorded on the early extinguishment of the remaining 2022 Notes in the prior period.

See Note 7, Debt , to the Condensed Consolidated Financial Statements for additional information.

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Three Months Ended

Six Months Ended

(in millions)

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Effective tax rate

The increase in the effective tax rate for the three months ended April 2, 2022 is primarily due to the recognition of certain tax benefits for the three months ended April 3, 2021 in discontinued operations under ASU 2019-12 and the required adoption of new U.S.

tax rules regarding expensing of research and experimental costs in the period ended April 2, 2022.

The increase in the effective tax rate for the three and six months ended July 2, 2022 was primarily due to the recognition of certain tax benefits for the three and six months ended July 3, 2021 in discontinued operations under the ASU 2019-12 and the required adoption of new U.S.

tax rules regarding expensing of research and experimental costs in the current fiscal year.

Equity-method Earnings

Equity-method earnings for the three months ended April 2, 2022 were $1.2 million compared to $1.7 million for the three months ended April 3, 2021.

Equity-method earnings for the three and six months ended July 2, 2022 was $0.0 million and $1.2 million, respectively, compared to $0.2 million and $1.9 million for the three and six months ended July 3, 2021, respectively.

Income from discontinued operations, net of income taxes

Three Months Ended

Six Months Ended

(in millions)

Income from discontinued operations, net of income taxes

There was no income from prior year discontinued operations in the current period.

Income from discontinued operations in the prior period included revenue of $97.7 million, income before income taxes of $36.9 million and an income tax benefit of $1.8 million.

There was no income from prior year discontinued operations in the current periods.

Income from discontinued operations for the three and six months ended July 3, 2021 included revenues of $108.1 million and $205.7 million, income before income taxes of $37.9 million and $74.8 million, and income tax benefits of $0.5 million and $2.3 million, respectively.

Business Outlook

The following represents our business outlook for the second quarter of fiscal 2022.

The following represents our business outlook for the third quarter of fiscal 2022.

Income Statement Item

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Liquidity and Capital Resources

Our principal sources of liquidity as of April 2, 2022 consisted of $1.9 billion in cash, cash equivalents and short-term investments, of which approximately $1.2 billion was held by our U.S.

Our principal sources of liquidity as of July 2, 2022 consisted of $1.5 billion in cash, cash equivalents and short-term investments, of which approximately $1.0 billion 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 agency bonds, agency discount notes, municipal bonds and U.S.

Our cash equivalents and short-term investments consisted of government debt securities, which include agency bonds, agency discount notes, municipal bonds, variable rate demand notes and U.S.

government securities;

corporate debt securities, which include asset-backed securities, corporate bonds, certificates of deposit and commercial paper;

corporate debt securities, which include asset-backed securities, corporate bonds, certificates of deposit, commercial paper and Yankee bonds;

and money market funds.

Our long-term investments consisted of auction-rate securities.

Operating Activities

Net cash provided by operating activities was $85.2 million during the three months ended April 2, 2022, compared to net cash used of $20.3 million during the three months ended April 3, 2021.

Operating cash flows during the three months ended April 2, 2022 reflect our net income of $22.9 million, adjustments of $23.5 million for depreciation, amortization, stock-based compensation, equity-method earnings and deferred income taxes, and a net cash inflow of $38.8 million due to changes in our operating assets and liabilities.

Accounts receivable decreased to $79.2 million at April 2, 2022 from $98.3 million at January 1, 2022.

Net cash provided by operating activities was $83.4 million during the six months ended July 2, 2022, compared to net cash provided of $5.7 million during the six months ended July 3, 2021.

Operating cash flows during the six months ended July 2, 2022 reflect our net income of $45.0 million, adjustments of $47.5 million for depreciation, amortization, stock-based compensation, equity-method earnings and deferred income taxes, and a net cash outflow of $9.1 million due to changes in our operating assets and liabilities.

Accounts receivable decreased to $72.1 million at July 2, 2022 from $98.3 million at January 1, 2022.

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

Our DSO was 30 days at April 2, 2022 and 42 days at January 1, 2022.

Inventory increased to $55.5 million at April 2, 2022 from $49.3 million at January 1, 2022.

Our DSO was 25 days at July 2, 2022 and 42 days at January 1, 2022.

Inventory increased to $74.0 million at July 2, 2022 from $49.3 million at January 1, 2022.

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 64 days at April 2, 2022 and 55 days at January 1, 2022.

Our DOI was 67 days at July 2, 2022 and 55 days at January 1, 2022.

Investing Activities

Net cash used in investing activities was $217.4 million during the three months ended April 2, 2022, compared to net cash provided of $146.9 million during the three months ended April 3, 2021.

The increase in cash outflows was principally due to an increase in cash outflows of $366.0 million from net purchases, sales and maturities of marketable securities in the current period.

Net cash used in investing activities was $27.9 million during the six months ended July 2, 2022, compared to net cash provided of $194.9 million during the six months ended July 3, 2021.

The decrease in cash inflows was principally due to a decrease in cash inflows of $221.8 million from net purchases, sales and maturities of marketable securities in the current period.

Financing Activities

Net cash used in financing activities was $166.5 million during the three months ended April 2, 2022, compared to net cash used of $158.4 million during the three months ended April 3, 2021.

Net cash used in financing activities was $586.7 million during the six months ended July 2, 2022, compared to net cash used of $170.9 million during the six months ended July 3, 2021.

The increase in cash outflows was principally due to an increase of $560.1 million for repurchases of our common stock in the current period, offset by $140.6 million in payments on debt in the prior period.

Discontinued Operations

Net cash used in discontinued operations was $10.0 million during the three months ended April 2, 2022, compared to net cash provided of $34.4 million during the three months ended April 3, 2021.

The decrease in cash inflows was principally due to a decrease of $38.7 million in income from discontinued operations, net of income taxes, and a payment of $10.0 million for income taxes on the gain on sale in the current period.

As of April 2, 2022, our debt included $535 million principal amount of convertible senior notes (the “2025 Notes”).

Net cash used in discontinued operations was $38.6 million during the six months ended July 2, 2022, compared to net cash provided of $70.7 million during the six months ended July 3, 2021.

The decrease in cash inflows was principally due to a decrease of $77.1 million in income from discontinued operations, net of income taxes, and payments of $38.6 million for income taxes on the gain on sale in the current period.

As of July 2, 2022, 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 enter into acquisitions or strategic arrangements in the future which also could require us to seek additional equity or debt financing.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

The preparation of financial statements and accompanying notes in conformity with U.S.

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

See Note 9, Revenues , to the Condensed Consolidated Financial Statements for additional information .

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

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Interest Income

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

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.

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interest rates.

Our investment portfolio holdings as April 2, 2022 yielded less than 100 basis points.

A decline in yield to zero basis points on our investment portfolio holdings as of April 2, 2022 would decrease our future annual interest income by approximately $10.4 million.

A 100 basis point decline in yield on our investment portfolio holdings as of July 2, 2022 would decrease our future annual interest income by approximately $13.0 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 April 2, 2022.

While we have drawn from the credit facility in the past, we have no borrowings as of July 2, 2022.

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

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

Investments in Auction-rate Securities

As of April 2, 2022, 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.

Additionally, if we determine that a credit-related decline in the fair value of any of our available-for-sale auction-rate securities has occurred, we may be required to adjust the carrying value of the investments through an impairment charge.

Available Information

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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