SILICON LABORATORIES INC. 10-Q

Item 1. Financial Statements Silicon Laboratories Inc. Condensed Consolidated Balance Sheets (In thousands, except per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ July 2, ​ January 1, ​ 2022 2022 Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 504,850 ​ $ 1,074,623 Short-term investments ​ 972,845 ​ 964,582 Accounts receivable, net ​ 72,106 ​ 98,313 Inventories ​ 74,026 ​ 49,307 Prepaid expenses and other current assets ​ 86,138 ​ 51,748 Total current assets ​ 1,709,965 ​ 2,238,573 Property and equipment, net ​ 149,447 ​ 146,516 Goodwill ​ 376,389 ​ 376,389 Other intangible assets, net ​ 99,784 ​ 118,978 Other assets, net ​ 83,813 ​ 77,839 Total assets ​ $ 2,419,398 ​ $ 2,958,295 Liabilities and Stockholders’ Equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 95,365 ​ $ 47,327 Current portion of convertible debt, net ​ ​ — ​ ​ 450,599 Deferred revenue and returns liability ​ ​ 10,696 ​ ​ 13,849 Other current liabilities ​ ​ 126,058 ​ 157,052 Total current liabilities ​ ​ 232,119 ​ 668,827 Convertible debt, net ​ ​ 528,564 ​ ​ — Other non-current liabilities ​ ​ 53,371 ​ 77,044 Total liabilities ​ ​ 814,054 ​ 745,871 Commitments and contingencies ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ Preferred stock – $ 0.0001 par value; 10,000 shares authorized; no shares issued ​ ​ — ​ ​ — Common stock – $ 0.0001 par value; 250,000 shares authorized; 34,223 and 38,481 shares issued and outstanding at July 2, 2022 and January 1, 2022, respectively ​ ​ 3 ​ 4 Retained earnings ​ ​ 1,619,396 ​ 2,214,839 Accumulated other comprehensive loss ​ ​ ( 14,055 ) ​ ( 2,419 ) Total stockholders’ equity ​ ​ 1,605,344 ​ 2,212,424 Total liabilities and stockholders’ equity ​ $ 2,419,398 ​ $ 2,958,295 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. ​ 3 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Six Months Ended ​ July 2, July 3, July 2, July 3, ​ ​ 2022 2021 ​ 2022 2021 Revenues ​ $ 263,150 ​ $ 169,492 ​ $ 496,964 ​ $ 327,349 Cost of revenues ​ ​ 99,247 ​ 73,194 ​ ​ 177,289 ​ 139,297 Gross profit ​ ​ 163,903 ​ 96,298 ​ ​ 319,675 ​ 188,052 Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ ​ 83,511 ​ 64,832 ​ ​ 161,053 ​ 128,847 Selling, general and administrative ​ ​ 49,013 ​ 42,953 ​ ​ 93,660 ​ 85,407 Operating expenses ​ ​ 132,524 ​ 107,785 ​ ​ 254,713 ​ 214,254 Operating income (loss) ​ ​ 31,379 ​ ​ ( 11,487 ) ​ ​ 64,962 ​ ( 26,202 ) Other income (expense): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income and other, net ​ ​ 3,445 ​ ​ 475 ​ ​ 4,944 ​ 1,624 Interest expense ​ ​ ( 1,667 ) ​ ​ ( 6,486 ) ​ ​ ( 3,347 ) ​ ( 17,810 ) Income (loss) from continuing operations before income taxes ​ ​ 33,157 ​ ​ ( 17,498 ) ​ ​ 66,559 ​ ( 42,388 ) Provision for income taxes ​ ​ 10,994 ​ 1,165 ​ ​ 22,683 ​ ​ 3,157 Equity-method earnings ​ ​ ( 28 ) ​ ​ 172 ​ ​ 1,166 ​ ​ 1,898 Income (loss) from continuing operations ​ ​ 22,135 ​ ​ ( 18,491 ) ​ ​ 45,042 ​ ​ ( 43,647 ) Income from discontinued operations, net of income taxes ​ ​ — ​ ​ 38,423 ​ ​ — ​ ​ 77,088 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 22,135 ​ $ 19,932 ​ $ 45,042 ​ $ 33,441 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Continuing operations ​ $ 0.62 ​ $ ( 0.41 ) ​ $ 1.22 ​ $ ( 0.98 ) Net income ​ $ 0.62 ​ $ 0.44 ​ $ 1.22 ​ $ 0.75 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Continuing operations ​ $ 0.60 ​ $ ( 0.41 ) ​ $ 1.18 ​ $ ( 0.98 ) Net income ​ $ 0.60 ​ $ 0.44 ​ $ 1.18 ​ $ 0.73 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 35,722 ​ ​ 44,803 ​ ​ 36,862 ​ ​ 44,481 Diluted ​ ​ 36,604 ​ ​ 45,756 ​ ​ 38,063 ​ ​ 45,794 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. ​ 4 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Comprehensive Income (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Six Months Ended ​ ​ July 2, July 3, July 2, July 3, ​ 2022 2021 ​ 2022 2021 Net income ​ $ 22,135 ​ $ 19,932 ​ $ 45,042 ​ $ 33,441 Other comprehensive loss, before tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net changes to available-for-sale securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized losses arising during the period ​ ​ ( 3,013 ) ​ ​ ( 564 ) ​ ​ ( 12,705 ) ​ ​ ( 1,400 ) Reclassification for (gains) losses included in net income ​ ​ 374 ​ ​ ( 39 ) ​ ​ 423 ​ ​ ( 397 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net changes to cash flow hedges ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gains (losses) arising during the period ​ ​ ( 3,001 ) ​ ​ 388 ​ ​ ( 3,545 ) ​ ( 269 ) Reclassification for (gains) losses included in net income ​ ​ 1,092 ​ ​ ( 160 ) ​ ​ 1,092 ​ ​ ( 320 ) Other comprehensive loss, before tax ​ ​ ( 4,548 ) ​ ​ ( 375 ) ​ ​ ( 14,735 ) ​ ( 2,386 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision (benefit) for income taxes ​ ​ ( 959 ) ​ ( 78 ) ​ ​ ( 3,099 ) ​ ( 501 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive loss ​ ​ ( 3,589 ) ​ ( 297 ) ​ ​ ( 11,636 ) ​ ( 1,885 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Comprehensive income ​ $ 18,546 ​ $ 19,635 ​ $ 33,406 ​ $ 31,556 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. ​ 5 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Three Months Ended July 2, 2022 ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income (Loss) ​ Equity Balance as of April 2, 2022 37,204 ​ $ 4 ​ $ — ​ $ 2,018,117 ​ $ ( 10,466 ) ​ $ 2,007,655 Net income ​ — ​ — ​ — ​ 22,135 ​ — ​ 22,135 Other comprehensive loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3,589 ) ​ ​ ( 3,589 ) Stock issuances, net of shares withheld for taxes ​ 159 ​ — ​ 1,161 ​ — ​ — ​ 1,161 Repurchases of common stock ​ ( 3,140 ) ​ ​ ( 1 ) ​ ​ ( 15,561 ) ​ ​ ( 420,856 ) ​ ​ — ​ ​ ( 436,418 ) Stock-based compensation ​ — ​ ​ — ​ ​ 14,400 ​ ​ — ​ ​ — ​ ​ 14,400 Balance as of July 2, 2022 ​ 34,223 ​ $ 3 ​ $ — ​ $ 1,619,396 ​ $ ( 14,055 ) ​ $ 1,605,344 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Three Months Ended July 3, 2021 ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income (Loss) ​ Equity Balance as of April 3, 2021 ​ 44,749 ​ $ 4 ​ $ 199,576 ​ $ 1,007,173 ​ $ 226 ​ $ 1,206,979 Net income ​ — ​ — ​ — ​ 19,932 ​ — ​ 19,932 Other comprehensive loss ​ — ​ — ​ — ​ — ​ ( 297 ) ​ ( 297 ) Stock issuances, net of shares withheld for taxes ​ 157 ​ — ​ 6,473 ​ — ​ — ​ 6,473 Repurchases of common stock ​ ( 142 ) ​ ​ — ​ ​ ( 18,982 ) ​ ​ — ​ ​ — ​ ​ ( 18,982 ) Stock-based compensation ​ — ​ — ​ 13,649 ​ — ​ — ​ 13,649 Balance as of July 3, 2021 ​ 44,764 ​ $ 4 ​ $ 200,716 ​ $ 1,027,105 ​ $ ( 71 ) ​ $ 1,227,754 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Six Months Ended July 2, 2022 ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income (Loss) ​ Equity Balance as of January 1, 2022 38,481 ​ $ 4 ​ $ — ​ $ 2,214,839 ​ $ ( 2,419 ) ​ $ 2,212,424 Cumulative effect of adoption of accounting standard ​ — ​ ​ — ​ ​ — ​ ​ ( 59,963 ) ​ ​ — ​ ​ ( 59,963 ) Net income — ​ — ​ — ​ 45,042 ​ ​ — ​ 45,042 Other comprehensive loss — ​ — ​ — ​ — ​ ( 11,636 ) ​ ( 11,636 ) Stock issuances, net of shares withheld for taxes 301 ​ — ​ ( 7,593 ) ​ — ​ — ​ ( 7,593 ) Repurchases of common stock ​ ( 4,559 ) ​ ​ ( 1 ) ​ ​ ( 19,675 ) ​ ​ ( 580,522 ) ​ ​ — ​ ​ ( 600,198 ) Stock-based compensation — ​ — ​ 27,268 ​ — ​ — ​ 27,268 Balance as of July 2, 2022 34,223 ​ $ 3 ​ $ — ​ ​ 1,619,396 ​ $ ( 14,055 ) ​ $ 1,605,344 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Six Months Ended July 3, 2021 ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income (Loss) ​ Equity Balance as of January 2, 2021 43,925 ​ $ 4 ​ $ 204,359 ​ $ 993,664 ​ $ 1,814 ​ $ 1,199,841 Net income — ​ — ​ — ​ 33,441 ​ ​ — ​ 33,441 Other comprehensive loss — ​ — ​ — ​ — ​ ( 1,885 ) ​ ( 1,885 ) Stock issuances, net of shares withheld for taxes 453 ​ — ​ ( 11,344 ) ​ — ​ — ​ ( 11,344 ) Repurchases of common stock ​ ( 142 ) ​ ​ — ​ ​ ( 18,982 ) ​ ​ — ​ ​ — ​ ​ ( 18,982 ) Stock-based compensation ​ — ​ ​ — ​ ​ 27,431 ​ ​ — ​ ​ — ​ ​ 27,431 Convertible debt activity 528 ​ — ​ ( 748 ) ​ — ​ — ​ ( 748 ) Balance as of July 3, 2021 44,764 ​ $ 4 ​ $ 200,716 ​ $ 1,027,105 ​ $ ( 71 ) ​ $ 1,227,754 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 6 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ July 2, ​ July 3, ​ 2022 2021 Operating Activities ​ ​ ​ ​ ​ ​ Net income ​ $ 45,042 ​ $ 33,441 Adjustments to reconcile net income to cash provided by operating activities of continuing operations: ​ ​ ​ ​ ​ ​ Income from discontinued operations, net of income taxes ​ ​ — ​ ​ ( 77,088 ) Depreciation of property and equipment ​ ​ 10,561 ​ 8,184 Amortization of other intangible assets ​ ​ 19,194 ​ 22,902 Amortization of debt discount and debt issuance costs ​ ​ 994 ​ ​ 11,822 Loss on extinguishment of convertible debt ​ ​ 3 ​ ​ 3,370 Stock-based compensation expense ​ ​ 27,264 ​ 22,620 Equity-method earnings ​ ​ ( 1,166 ) ​ ​ ( 1,898 ) Deferred income taxes ​ ​ ( 9,344 ) ​ ( 5,644 ) Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 26,207 ​ ( 4,377 ) Inventories ​ ​ ( 24,714 ) ​ ( 4,447 ) Prepaid expenses and other assets ​ ​ ( 25,286 ) ​ ( 3,591 ) Accounts payable ​ ​ 25,606 ​ 14,711 Other current liabilities and income taxes ​ ​ ( 3,418 ) ​ ( 10,626 ) Deferred revenue and returns liability ​ ​ ( 3,153 ) ​ ( 175 ) Other non-current liabilities ​ ​ ( 4,416 ) ​ ​ ( 3,464 ) Net cash provided by operating activities of continuing operations ​ ​ 83,374 ​ 5,740 ​ ​ ​ ​ ​ ​ ​ Investing Activities ​ ​ ​ ​ ​ ​ Purchases of marketable securities ​ ​ ( 554,267 ) ​ ( 80,426 ) Sales of marketable securities ​ ​ 27,404 ​ 186,626 Maturities of marketable securities ​ ​ 511,296 ​ ​ 100,023 Purchases of property and equipment ​ ​ ( 12,322 ) ​ ( 10,779 ) Purchases of other assets ​ ​ — ​ ​ ( 578 ) Net cash provided by (used in) investing activities of continuing operations ​ ​ ( 27,889 ) ​ 194,866 ​ ​ ​ ​ ​ ​ ​ Financing Activities ​ ​ ​ ​ ​ ​ Payments on debt ​ ​ ( 21 ) ​ ​ ( 140,572 ) Repurchases of common stock ​ ​ ( 579,040 ) ​ ​ ( 18,982 ) Payment of taxes withheld for vested stock awards ​ ​ ( 13,958 ) ​ ​ ( 19,732 ) Proceeds from the issuance of common stock ​ ​ 6,365 ​ ​ 8,388 Net cash used in financing activities of continuing operations ​ ​ ( 586,654 ) ​ ( 170,898 ) ​ ​ ​ ​ ​ ​ ​ Discontinued Operations ​ ​ ​ ​ ​ ​ Operating activities ​ ​ ( 38,604 ) ​ ​ 72,674 Investing activities ​ ​ — ​ ​ ( 2,018 ) Net cash provided by (used in) discontinued operations ​ ​ ( 38,604 ) ​ ​ 70,656 ​ ​ ​ ​ ​ ​ ​ Increase (decrease) in cash and cash equivalents ​ ​ ( 569,773 ) ​ 100,364 Cash and cash equivalents at beginning of period ​ ​ 1,074,623 ​ 202,720 Cash and cash equivalents at end of period ​ $ 504,850 ​ $ 303,084 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. ​ ​ 7 Table of Contents 1. Significant Accounting Policies ​ Basis of Presentation and Principles of Consolidation ​ The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The information included herein contains all normal recurring accruals and adjustments which, in the opinion of management, are necessary to present fairly Silicon Laboratories Inc.’s (the “Company”) financial position, results of its operations, comprehensive income, stockholders’ equity and cash flows. The Condensed Consolidated Balance Sheet as of January 1, 2022 was derived from the Company’s audited Consolidated Financial Statements. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three and six months ended July 2, 2022 are not necessarily indicative of the results to be expected for the full year. ​ These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended January 1, 2022, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 2, 2022. ​ The Company prepares financial statements on 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. In a 52-week year, each fiscal quarter consists of 13 weeks. ​ Use of Estimates ​ The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those related to inventories, goodwill, acquired intangible assets, other long-lived assets, revenue recognition, stock-based compensation and income taxes. Actual results could differ from those estimates, and such differences could be material to the financial statements. The Company periodically reviews the assumptions used in its financial statement estimates. ​ Revenue Recognition ​ Revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Substantially all of the Company’s contracts with customers contain a single performance obligation, the sale of mixed-signal integrated circuit (IC) products. This performance obligation is satisfied when control of the product is transferred to the customer, which typically occurs upon delivery. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. The Company has opted to not disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year. ​ The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer and may include fixed or variable amounts. Variable consideration primarily includes sales made to distributors under agreements allowing certain rights of return, referred to as stock rotation, and credits issued to the distributor due to price protection. The Company estimates variable consideration at the most likely amount to which it expects to be entitled. The estimate is based on information available to the Company, including recent sales activity and pricing data. The Company applies a constraint to its variable consideration estimate which considers both the likelihood of a return and the amount of a potential price concession. Variable consideration that does not meet revenue recognition criteria is deferred. The Company records a right of return asset in prepaid expenses and other current assets for the costs of distributor inventory not meeting revenue recognition criteria. A corresponding deferred revenue and returns liability amount is recorded for unrecognized revenue associated with such costs. The Company’s products carry a one-year replacement warranty. Payments are typically due within 30 days of invoicing and do not include a significant financing component. ​ 8 Table of Contents 1. Significant Accounting Policies (Continued) Adoption of New Accounting Standard ​ Convertible Instruments ​ The Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40 , on January 2, 2022, the first day of its fiscal year ending December 31, 2022. The Company elected the modified retrospective transition method of adoption at the beginning of the period of adoption through a cumulative-effect adjustment. Prior periods have not been adjusted. The following reflects the material changes recorded in connection with the cumulative-effect adjustment (in thousands): ​ ​ ​ ​ ​ ​ Increase Financial Statement Line Item ​ (Decrease) Current portion of convertible debt, net ​ $ 76,991 Other non-current liabilities ​ $ ( 17,028 ) Retained earnings ​ $ ( 59,963 ) ​ The primary impact of the Company’s adoption of ASU 2020-06 was to increase the carrying value of its convertible debt, representing the unamortized debt discount, and reduce deferred tax liabilities related to convertible debt. The adoption reduced reported interest expense recorded in connection with convertible debt, which increased basic earnings per share and diluted earnings per share by $ 0.11 and $ 0.11 , respectively, for the three months ended July 2, 2022, and by $ 0.22 and $ 0.21 , respectively, for the six months ended July 2, 2022. ​ 2. Discontinued Operations ​ On July 26, 2021, the Company sold its infrastructure and automotive business to Skyworks Solutions, Inc. for $ 2.75 billion in cash. The financial results of the infrastructure and automotive business, which are readily distinguishable from other components of the Company, have been presented as discontinued operations in the Condensed Consolidated Financial Statements because the sale represented a strategic shift for the Company. The following table presents the financial results of the infrastructure and automotive business (the “discontinued operations”) in the Company’s Condensed Consolidated Statements of Income (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Six Months Ended ​ ​ July 3, ​ July 3, ​ ​ 2021 ​ 2021 Revenues ​ $ 108,064 ​ $ 205,712 Costs of revenues ​ 45,091 ​ 83,910 Operating expenses ​ ​ 25,052 ​ ​ 47,007 Income from discontinued operations before income taxes ​ 37,921 ​ 74,795 Provision (benefit) for income taxes ​ ​ ( 502 ) ​ ​ ( 2,293 ) Income from discontinued operations ​ $ 38,423 ​ $ 77,088 ​ ​ ​ ​ ​ ​ ​ Income from discontinued operations per share: ​ ​ Basic ​ $ 0.86 ​ $ 1.73 Diluted ​ $ 0.84 ​ $ 1.68 ​ ​ 9 Table of Contents 2. Discontinued Operations (Continued) Continuing Involvement ​ In connection with the closing of the sale, the Company entered into certain ancillary agreements with Skyworks, including a Transition Services Agreement (“TSA”). Through the TSA, the Company has subleased certain premises to Skyworks and will provide or provides various temporary support services for three to eighteen months after the close of the transaction, depending on the service provided. Although the services provided under the TSA will generate continuing cash flows between the Company and Skyworks for the duration of the TSA, the amounts have not been nor are expected to be material to the ongoing operations of either entity. In addition, the Company has no contractual ability through the TSA or any other agreement to significantly influence the operating or financial policies of Skyworks. Fees received by the Company under the TSA were approximately $ 3.5 million for the six months ended July 2, 2022. ​ 3. Earnings (Loss) Per Share ​ The following table sets forth the computation of basic and diluted earnings (loss) per share from continuing operations (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ July 2, July 3, July 2, July 3, ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 Income (loss) from continuing operations ​ $ 22,135 ​ $ ( 18,491 ) ​ $ 45,042 ​ $ ( 43,647 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares used in computing basic income (loss) per share ​ ​ 35,722 ​ 44,803 ​ ​ 36,862 ​ 44,481 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of dilutive securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible debt and stock-based awards ​ ​ 882 ​ — ​ ​ 1,201 ​ — Shares used in computing diluted income (loss) per share ​ ​ 36,604 ​ 44,803 ​ ​ 38,063 ​ 44,481 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.62 ​ $ ( 0.41 ) ​ $ 1.22 ​ $ ( 0.98 ) Diluted ​ $ 0.60 ​ $ ( 0.41 ) ​ $ 1.18 ​ $ ( 0.98 ) ​ The Company has irrevocably elected to settle the principal amount of its convertible senior notes in cash and intends to settle any excess value in shares in the event of a conversion. For the three months ended July 2, 2022 and July 3, 2021 and the six months ended July 2, 2022 and July 3, 2021, approximately 0.6 million, 0.5 million, 0.8 million and 0.8 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share. See Note 7, Debt , to the Condensed Consolidated Financial Statements for additional information. ​ 4. Fair Value of Financial Instruments ​ The fair values of the Company’s financial instruments are recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below: Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 – Inputs other than Level 1 that are directly or indirectly observable, such as quoted prices for similar assets or liabilities and quoted prices in less active markets. Level 3 – Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data. 10 Table of Contents 4. Fair Value of Financial Instruments (Continued) The following summarizes the valuation of the Company’s financial instruments (in thousands). The tables do not include either cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements ​ ​ ​ ​ ​ at July 2, 2022 Using ​ ​ ​ ​ ​ Quoted Prices in ​ Significant Other ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ ​ ​ Description (Level 1) (Level 2) Total Assets: ​ ​ ​ ​ ​ ​ Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ $ 275,655 ​ $ — ​ $ 275,655 Government debt securities ​ ​ 23,617 ​ ​ 5,003 ​ ​ 28,620 Corporate debt securities ​ ​ — ​ ​ 16,934 ​ ​ 16,934 Total cash equivalents ​ $ 299,272 ​ $ 21,937 ​ $ 321,209 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Short-term investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ Government debt securities ​ $ 211,319 ​ $ 92,343 ​ $ 303,662 Corporate debt securities ​ ​ — ​ ​ 669,183 ​ ​ 669,183 Total short-term investments ​ $ 211,319 ​ $ 761,526 ​ $ 972,845 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 510,591 ​ $ 783,463 ​ $ 1,294,054 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements ​ ​ ​ ​ ​ at January 1, 2022 Using ​ ​ ​ ​ ​ Quoted Prices in ​ Significant Other ​ Significant ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ ​ ​ Description (Level 1) (Level 2) (Level 3) Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ $ 845,740 ​ $ — ​ $ — ​ $ 845,740 Corporate debt securities ​ ​ — ​ 3,552 ​ — ​ 3,552 Government debt securities ​ ​ — ​ ​ 2,950 ​ ​ — ​ ​ 2,950 Total cash equivalents ​ $ 845,740 ​ $ 6,502 ​ $ — ​ $ 852,242 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Short-term investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government debt securities ​ $ 71,509 ​ $ 119,612 ​ $ — ​ $ 191,121 Corporate debt securities ​ ​ — ​ ​ 773,461 ​ ​ — ​ ​ 773,461 Total short-term investments ​ $ 71,509 ​ $ 893,073 ​ $ — ​ $ 964,582 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other assets, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Auction rate securities ​ $ — ​ $ — ​ $ 4,980 ​ $ 4,980 Total ​ $ — ​ $ — ​ $ 4,980 ​ $ 4,980 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 917,249 ​ $ 899,575 ​ $ 4,980 ​ $ 1,821,804 ​ ​ 11 Table of Contents 4. Fair Value of Financial Instruments (Continued) Valuation methodology The Company’s cash equivalents and short-term investments that are classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; quoted prices in less active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding periods of the securities and a discount to reflect the Company’s inability to liquidate the securities. The Company’s foreign currency derivative instruments are valued using discounted cash flow models. The assumptions used in preparing the valuation models include foreign exchange rates, forward and spot prices for currencies and market observable data of similar instruments. Contractual maturities of investments The Company’s investments are reported at fair value, with unrealized gains and losses, net of tax, recorded as a component of accumulated other comprehensive loss in the Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at July 2, 2022 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair ​ ​ Cost ​ Value Due in one year or less ​ $ 582,705 ​ $ 577,005 Due after one year through ten years ​ ​ 450,388 ​ ​ 440,743 Due after ten years ​ ​ 650 ​ ​ 650 ​ ​ $ 1,033,743 ​ $ 1,018,398 ​ Available-for-sale investments ​ The available-for-sale investments that were in a continuous unrealized loss position, aggregated by length of time that individual securities have been in a continuous loss position, were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ 12 Months or Greater ​ Total ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized As of July 2, 2022 Value Losses Value Losses Value Losses Government debt securities ​ $ 304,308 ​ $ ( 5,200 ) ​ $ 2,051 ​ $ ( 60 ) ​ $ 306,359 ​ $ ( 5,260 ) Corporate debt securities ​ 630,420 ​ ( 9,918 ) ​ 9,416 ​ ( 190 ) ​ 639,836 ​ ( 10,108 ) ​ ​ $ 934,728 ​ $ ( 15,118 ) ​ $ 11,467 ​ $ ( 250 ) ​ $ 946,195 ​ $ ( 15,368 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ 12 Months or Greater ​ Total ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized As of January 1, 2022 Value Losses Value Losses Value Losses Government debt securities ​ $ 126,957 ​ $ ( 750 ) ​ $ — ​ $ — ​ $ 126,957 ​ $ ( 750 ) Corporate debt securities ​ 418,917 ​ ​ ( 1,451 ) ​ ​ 326 ​ ​ ( 1 ) ​ ​ 419,243 ​ ​ ( 1,452 ) Auction rate securities ​ ​ — ​ ​ — ​ ​ 4,980 ​ ​ ( 1,020 ) ​ ​ 4,980 ​ ​ ( 1,020 ) ​ ​ $ 545,874 ​ $ ( 2,201 ) ​ $ 5,306 ​ $ ( 1,021 ) ​ $ 551,180 ​ $ ( 3,222 ) ​ The gross unrealized losses as of July 2, 2022 were due primarily to changes in market interest rates. The gross unrealized losses as of January 1, 2022 were due primarily to changes in market interest rates and the illiquidity of the Company’s auction-rate securities. 12 Table of Contents 4. Fair Value of Financial Instruments (Continued) The Company records an allowance for credit loss when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, the Company reviews factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. As of July 2, 2022, there were no material declines in the market value of available-for-sale investments due to credit-related factors. ​ At July 2, 2022 and January 1, 2022, there were no material unrealized gains associated with the Company’s available-for-sale investments. Level 3 fair value measurements The following summarizes the activity in Level 3 financial instruments for the three and six months ended July 2, 2022 (in thousands): ​ Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Six Months Auction Rate Securities Ended Ended Beginning balance ​ $ 4,944 ​ $ 4,980 Sales (1) ​ ​ ( 6,000 ) ​ ​ ( 6,000 ) Loss recognized in earnings ​ ​ 300 ​ ​ 300 Gain included in other comprehensive loss ​ 756 ​ 720 Balance at July 2, 2022 ​ $ — ​ $ — (1) On May 31, 2022, the Company sold its prior remaining holding of auction-rate securities for $ 5.7 million. Fair values of other financial instruments ​ The Company’s debt is recorded at cost, but is measured at fair value for disclosure purposes. The fair value of the Company’s convertible senior notes is determined using observable market prices. The notes are traded in less active markets and are therefore classified as a Level 2 fair value measurement. As of July 2, 2022 and January 1, 2022, the fair value of the notes was $ 671.0 million and $ 944.3 million, respectively. ​ The Company’s other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fair values due to their short maturities. ​ 5. Derivative Financial Instruments ​ The Company uses derivative financial instruments to manage certain exposures to the variability of foreign currency exchange rates. The Company’s objective is to offset increases and decreases in expenses resulting from these exposures with gains and losses on the derivative contracts, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative or trading purposes. The Company recognizes derivatives, on a gross basis, in the Consolidated Balance Sheet at fair value. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows. 13 Table of Contents 5. Derivative Financial Instruments (Continued) Cash Flow Hedges Foreign Currency Forward Contracts The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on operating expenses denominated in currencies other than the U.S. dollar. Changes in the fair value of the contracts are recorded in accumulated other comprehensive loss in the Consolidated Balance Sheet and subsequently reclassified into earnings in the period during which the hedged transaction is recognized. The reclassified amount is reported in the same financial statement line item as the hedged item. If the foreign currency forward contracts are terminated or can no longer qualify as hedging instruments prior to maturity, the fair value of the contracts recorded in accumulated other comprehensive loss may be recognized in the Consolidated Statement of Income based on an assessment of the contracts at the time of termination. The Company has entered into foreign currency forward contracts for a portion of its forecasted operating expenses denominated in the Euro, Hungarian Forint, Indian Rupee and Norwegian Krone. As of July 2, 2022, the contracts had maturities of one to six months and an aggregate notional value of $ 32.0 million. Gains and losses expected to be reclassified into earnings in the next twelve months were not material. The fair value of the contracts, contract gains or losses recognized in other comprehensive loss and amounts reclassified from accumulated other comprehensive loss into earnings were not material for any of the periods presented. Non-designated Hedges Foreign Currency Forward Contracts The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on non-U.S. dollar balance sheet exposures. The Company recognizes gains and losses on the foreign currency forward contracts in interest income and other, net in the Consolidated Statement of Income in the same period as the remeasurement loss and gain of the related foreign currency denominated asset or liability. The Company does not apply hedge accounting to these foreign currency forward contracts. As of July 2, 2022, the Company held foreign currency forward contracts denominated in Hungarian Forint and Indian Rupees with an aggregate notional value of $ 6.3 million. The fair value of the foreign contracts and contract gains and losses recognized in income were not material for any of the periods presented. ​ 6. Supplemental Information The following shows the details of selected Condensed Consolidated Balance Sheet items (in thousands): Inventories ​ ​ ​ ​ ​ ​ ​ ​ ​ July 2, January 1, ​ ​ 2022 ​ 2022 Work in progress ​ $ 53,744 ​ $ 36,078 Finished goods ​ 20,282 ​ 13,229 ​ ​ $ 74,026 ​ $ 49,307 ​ Lease income ​ The Company leases a portion of its headquarter facilities to other tenants. Lease income from operating leases was $ 3.7 million and $ 1.6 million during the six months ended July 2, 2022 and July 3, 2021, respectively. ​ 14 Table of Contents 7. Debt 0.625 % Convertible Senior Notes On June 1, 2020, the Company completed a private placement of $ 535 million principal amount convertible senior notes (the “2025 Notes”). The 2025 Notes bear interest semi-annually at a rate of 0.625 % per year and mature on June 15, 2025. The 2025 Notes are convertible at a conversion rate of 8.1980 shares of common stock per $1,000 principal amount of the 2025 Notes, or approximately 4.4 million shares of common stock, which is equivalent to a conversion price of approximately $ 121.98 per share. The conversion rate is subject to adjustment under certain circumstances. Holders may convert the 2025 Notes under the following circumstances: during any calendar quarter after the calendar quarter ended on September 30, 2020 if the closing price of the Company’s common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to $ 159.51 per share, representing 130 % of the conversion price of the 2025 Notes (“the Sales Price Trigger”); during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the closing sale price of our common stock and the conversion rate on each such trading day; if specified distributions or corporate events occur; if the Notes are called for redemption; or at any time after March 15, 2025. The Company may redeem all or any portion of the 2025 Notes, at its option, on or after June 20, 2023, if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period. As of January 1, 2022, upon conversion, the 2025 Notes could be settled in cash, shares of the Company’s common stock or a combination of cash and shares, at the Company’s election. On January 2, 2022, the Company irrevocably elected cash settlement for the principal amount of the 2025 Notes. The Company intends to settle any excess value in shares in the event of a conversion. The 2025 Notes were classified as current liabilities at January 1, 2022 due to the Sales Price Trigger condition being met on January 1, 2022. The Sales Price Trigger condition has not been met during the six months ended July 2, 2022, therefore the net carrying amount of the 2025 Notes is now classified as a non-current liability. The principal balance of the 2025 Notes was initially separated into liability and equity components, and recorded at fair value. The excess of the principal amount of the liability component over its carrying amount represented the debt discount, which was amortized to interest expense over the term of the 2025 Notes using the effective interest method. With the Company’s adoption of ASU 2020-06 in fiscal 2022, the principal balance of the 2025 Notes is no longer separated between liability and equity components. This resulted in an increase to the carrying value of its convertible debt, representing the unamortized debt discount as of January 2, 2022, with an offsetting reduction in stockholders’ equity. The Company incurred debt issuance costs of approximately $ 10.4 million, which were allocated to the liability and equity components in proportion to the allocation of the proceeds. Upon the adoption of ASU 2020-06, the equity component was reclassified to liabilities and remeasured to reflect cumulative amortization since the issuance of the 2025 Notes. The carrying amount of the 2025 Notes consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ July 2, January 1, ​ ​ 2022 ​ 2022 Liability component ​ ​ ​ Principal ​ $ 534,980 ​ $ 535,000 Unamortized debt discount ​ — ​ ( 78,519 ) Unamortized debt issuance costs ​ ( 6,416 ) ​ ( 5,882 ) Net carrying amount ​ $ 528,564 ​ $ 450,599 ​ ​ ​ ​ ​ ​ ​ Equity component ​ ​ ​ ​ Net carrying amount ​ $ — ​ $ 107,928 ​ 15 Table of Contents 7. Debt (Continued) The liability component of the 2025 Notes is recorded in convertible debt on the Consolidated Balance Sheet. Prior to the Company’s adoption of ASU 2020-06, the equity component of the 2025 Notes was recorded in stockholders’ equity. The effective interest rate for the liability component was 5.336 %. As of July 2, 2022, the remaining period over which the debt issuance costs will be amortized was 3.0 years. ​ Interest expense related to the notes was comprised of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ July 2, ​ July 3, ​ July 2, July 3, ​ 2022 2021 2022 2021 Contractual interest expense ​ $ 839 ​ $ 836 ​ $ 1,684 ​ $ 1,999 Amortization of debt discount ​ ​ — ​ ​ 4,992 ​ ​ — ​ 10,930 Amortization of debt issuance costs ​ ​ 497 ​ ​ 374 ​ ​ 994 ​ 892 ​ ​ $ 1,336 ​ $ 6,202 ​ $ 2,678 ​ $ 13,821 ​ Credit Facility ​ The Company and certain of its domestic subsidiaries (the “Guarantors”) have a $ 400 million revolving credit facility with a maturity date of August 7, 2024. The credit facility includes a $ 25 million letter of credit sublimit and a $ 10 million swingline loan sublimit. The Company also has an option to increase the size of the borrowing capacity by up to the greater of an aggregate of $ 250 million and 100 % of EBITDA of the last four fiscal quarters, plus an amount that would not cause a secured leverage ratio (funded debt secured by assets/EBITDA) to exceed 3.25 to 1.00, subject to certain conditions. The credit facility, other than swingline loans, will bear interest at the Eurodollar rate plus an applicable margin or, at the option of the Company, a base rate (defined as the highest of the Wells Fargo prime rate, the Federal Funds rate plus 0.50 % and the Eurodollar Base Rate plus 1.00 %) plus an applicable margin. Swingline loans accrue interest at the base rate plus the applicable margin for base rate loans. The applicable margins for the Eurodollar rate loans range from 1.00 % to 1.75 % and for base rate loans range from 0.00 % to 0.75 %, depending in each case, on the leverage ratio as defined in the credit facility. The credit facility contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain a net leverage ratio (funded indebtedness/EBITDA) of no more than 4.25 to 1, a secured leverage ratio of no more than 3.50 to 1, and a minimum interest coverage ratio (EBITDA/interest payments) of no less than 2.50 to 1. As of July 2, 2022, the Company was in compliance with all covenants of the credit facility. The Company’s obligations under the credit facility are guaranteed by the Guarantors and are secured by a security interest in substantially all assets of the Company and the Guarantors. As of July 2, 2022, no amounts were outstanding on the credit facility. ​ 8. Commitments and Contingencies Legal Proceedings ​ The Company is involved in various legal proceedings that have arisen in the normal course of business. While the ultimate results cannot be predicted with certainty, the Company does not expect them to have a material adverse effect on its Consolidated Financial Statements. ​ ​ 16 Table of Contents 9. Revenues The Company groups its products as Industrial & Commercial or Home & Life based on the target markets they address. The following represents revenue by product category (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Six Months Ended ​ ​ July 2, ​ July 3, ​ July 2, ​ July 3, ​ 2022 2021 2022 2021 Industrial & Commercial ​ $ 144,144 ​ $ 89,412 ​ $ 270,813 ​ $ 168,137 Home & Life ​ 119,006 ​ 80,080 ​ 226,151 ​ 159,212 ​ ​ $ 263,150 ​ $ 169,492 ​ $ 496,964 ​ $ 327,349 ​ A portion of the Company's sales are made to distributors under agreements allowing certain rights of return and/or price protection related to the final selling price to the end customers. These factors impact the timing and uncertainty of revenues and cash flows. The Company periodically reviews the assumptions used to estimate consideration it will be entitled to receive from customers. In the second quarter of fiscal 2022, the Company adjusted certain assumptions used to estimate the constraint on variable consideration, which increased revenue by $ 11.4 million and $ 5.0 million in the three and six months ended July 2, 2022, respectively. During the three months ended July 2, 2022 and July 3, 2021 and the six months ended July 2, 2022 and July 3, 2021, the Company recognized revenue of $ 36.5 million, $ 8.4 million, $ 32.0 million and $ 9.3 million, respectively, from performance obligations that were satisfied in previous reporting periods. The following disaggregates the Company's revenue by sales channel (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ July 2, July 3, July 2, July 3, ​ 2022 2021 2022 2021 Distributors ​ $ 211,943 ​ $ 137,933 ​ $ 404,208 ​ $ 265,919 Direct customers ​ ​ 51,207 ​ 31,559 ​ ​ 92,756 ​ 61,430 ​ ​ $ 263,150 ​ $ 169,492 ​ $ 496,964 ​ $ 327,349 ​ ​ 10. Stock-Based Compensation Stock-based compensation costs are based on the fair values on the date of grant for stock awards and stock options and on the date of enrollment for the employee stock purchase plans. The fair values of stock awards (such as restricted stock units (RSUs), performance stock units (PSUs) and restricted stock awards (RSAs)) are estimated based on their intrinsic values. The fair values of market stock awards (MSUs) are estimated using a Monte Carlo simulation. The fair values of stock options and employee stock purchase plans are estimated using the Black-Scholes option-pricing model. The following table presents details of stock-based compensation costs recognized in the Condensed Consolidated Statements of Income (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ July 2, ​ July 3, ​ July 2, ​ July 3, ​ 2022 2021 2022 2021 Cost of revenues ​ $ 274 ​ $ 199 ​ $ 546 ​ $ 436 Research and development ​ ​ 7,703 ​ ​ 5,488 ​ ​ 14,694 ​ 11,118 Selling, general and administrative ​ ​ 6,412 ​ ​ 5,565 ​ ​ 12,024 ​ 11,066 ​ ​ ​ 14,389 ​ ​ 11,252 ​ ​ 27,264 ​ 22,620 Income tax benefit ​ ​ 1,371 ​ ​ 577 ​ ​ 3,215 ​ ​ 1,259 Share-based compensation – continuing operations ​ ​ 13,018 ​ ​ 10,675 ​ ​ 24,049 ​ ​ 21,361 Share-based compensation – discontinued operations, net ​ ​ — ​ ​ 1,634 ​ ​ — ​ ​ 3,109 Total ​ $ 13,018 ​ $ 12,309 ​ $ 24,049 ​ $ 24,470 ​ The Company had approximately $ 130.4 million of total unrecognized compensation cost related to equity grants as of July 2, 2022 that is expected to be recognized over a weighted-average period of approximately 2.4 years. There were no significant stock-based compensation costs capitalized into assets in any of the periods presented. 17 Table of Contents 11. Income Taxes ​ Provision 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. Income tax expense was $ 11.0 million and $ 1.2 million for the three months ended July 2, 2022 and July 3, 2021, resulting in effective tax rates of 33.2 % and ( 6.7 )%, respectively. Income tax expense was $ 22.7 million and $ 3.2 million for the six months ended July 2, 2022 and July 3, 2021, resulting in effective tax rates of 33.5 % and ( 7.8 )%, respectively. The increase in the effective tax rate for the three and six months ended July 2, 2022 was primarily due to the application of FASB ASU 2019-12, Simplifying the Accounting for Income Taxes, to the three and six months ended July 3, 2021 and the required adoption of new U.S. tax rules regarding expensing of research and experimental costs in the current fiscal year. Under ASU 2019-12, the income tax benefit of a loss from continuing operations should be recognized in discontinued operations if the Company would be unable to benefit from the loss without considering the income from discontinued operations. As such, tax benefits associated with losses incurred for the three and six months ended July 3, 2021 were recognized in discontinued operations. The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. Under the Act, research and experimental expenditures incurred for tax years beginning after December 31, 2021 must be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on where the research activities are conducted. The Company has elected to treat global intangible low-taxed income (GILTI) as a period cost so the capitalization of research and experimental costs in GILTI increases the Company’s provision for income taxes. Uncertain Tax Positions As of July 2, 2022, the Company had gross unrecognized tax benefits, inclusive of interest, of $ 4.3 million, all of which would affect the effective tax rate if recognized. During the six months ended July 2, 2022, the Company did not release any unrecognized tax benefits. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. These amounts were not material for any of the periods presented. Following the completion of the Norwegian Tax Administration (“NTA”) examination of the Company’s Norwegian subsidiary for income tax matters relating to fiscal years 2013 - 2016, the Company received an assessment from the NTA in December 2017 concerning an adjustment to its 2013 taxable income related to the pricing of an intercompany transaction. The Company is currently appealing the assessment. The adjustment to the pricing of the intercompany transaction results in approximately 141.3 million Norwegian kroner, or $ 14.2 million, additional Norwegian income tax. The Company disagrees with the NTA’s assessment and believes the Company’s position on this matter is more likely than not to be sustained. The Company plans to exhaust all available administrative remedies, and if unable to resolve this matter through administrative remedies with the NTA, the Company plans to pursue judicial remedies. The Company believes that it has accrued adequate reserves related to all matters contained in tax periods open to examination. Should the Company experience an unfavorable outcome in the NTA matter, however, such an outcome could have a material impact on its financial statements. Tax years 2015 through 2022 remain open to examination by the major taxing jurisdictions in which the Company operates. The Company is not currently under audit in any major taxing jurisdiction. The Company believes it is reasonably possible that its gross unrecognized tax benefits will decrease by approximately $ 0.5 million, inclusive of interest, in the next 12 months due to the lapse of the statute of limitations. ​