What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-26 compared with 2023-04-26 · 60 added, 56 removed, 155 unchanged (43% of the section changed)

5 unchanged sentences

Fiscal 2023 will have 52 weeks and fiscal 2022 had 52 weeks.

Our first quarter of fiscal 2023 ended April 1, 2023.

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

Impact of COVID-19

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 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.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration, severity and spread of the pandemic, related restrictions on travel and transportation and other actions that may be taken by governmental authorities, the impact to the business of our suppliers or customers, and other items identified under “Risk Factors” below, all of which are uncertain and cannot be predicted.

Our second quarter of fiscal 2023 ended July 1, 2023.

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

Impact of Macroeconomic Conditions

The current global economic environment is experiencing inflationary pressure, rising interest rates, and geopolitical tension.

The extent of the impact of these macroeconomic conditions on our operational and financial performance will depend on future developments, including the duration and severity of any economic downturn, the impact to the business of our suppliers or customers, and other items identified under “Risk Factors” below, all of which are uncertain and cannot be predicted.

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

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Current Period Highlights

Revenues increased $13.0 million in the recent quarter compared to the first quarter of fiscal 2022 due to increased revenues from our Industrial & Commercial products offset by decreased revenue from our Home & Life products.

Gross profit decreased $1.9 million during the same period due decreased gross profit from our Home & Life products offset by increased gross profit from our Industrial & Commercial products.

Gross margin decreased to 62.3% in the recent quarter compared to 66.6% in the first quarter of fiscal 2022 primarily due to variations in the price and costs of our products and variations in product mix.

Operating expenses increased by $12.1 million in the recent quarter compared to the first quarter of fiscal 2022 due primarily to increased personnel-related expenses, new product introduction costs and occupancy costs.

Operating income in the recent quarter was $19.6 million compared to $33.6 million in the first quarter of fiscal 2022.

We ended the first quarter of fiscal 2023 with $1.2 billion in cash, cash equivalents and short-term investments.

Net cash used in operating activities was $13.3 million during the recent three-month period.

Accounts receivable were $87.7 million at April 1, 2023, representing 32 days sales outstanding (“DSO”).

Inventory was $133.2 million at April 1, 2023, representing 129 days of inventory (“DOI”).

In three months ended April 1, 2023, we acquired 0.1 million shares of our common stock for $13.5 million.

Revenues decreased $18.3 million in the recent quarter compared to the second quarter of fiscal 2022 due to decreased revenues from our Home & Life products offset by increased revenues from our Industrial & Commercial products.

Gross profit decreased $20.1 million during the same period due to decreased gross profit from our Home & Life products offset by increased gross profit from our Industrial & Commercial products.

Gross margin decreased to 58.7% in the recent quarter compared to 62.3% in the second quarter of fiscal 2022 primarily due to variations in the price and costs of our products and variations in product mix.

Operating expenses decreased by $5.9 million in the recent quarter compared to the second quarter of fiscal 2022 due primarily to decreased new product introduction costs and amortization of intangible assets.

Operating income in the recent quarter was $17.2 million compared to $31.4 million in the second quarter of fiscal 2022.

We ended the second quarter of fiscal 2023 with $505.9 million in cash, cash equivalents and short-term investments.

Net cash used in operating activities was $15.5 million during the recent six-month period.

Accounts receivable were $98.3 million at July 1, 2023, representing 36 days sales outstanding (“DSO”).

Inventory was $145.5 million at July 1, 2023, representing 130 days of inventory (“DOI”).

During the second quarter, we paid $535.0 million in cash and issued 0.9 million shares of common stock in connection with the extinguishment of the remaining principal of our 2025 convertible senior notes.

In the second quarter of fiscal 2023, we acquired 1.3 million shares of our common stock for $183.5 million.

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 2023, we introduced new integrated Bluetooth® SoC and MCU families that offer IoT device designers energy efficiency, high performance and trusted security for the smallest form factor IoT devices.

In the first six months of fiscal 2023, we introduced a dual-band SoC, designed for long-range networks and protocols like Amazon Sidewalk, Wi-SUN®, and other proprietary protocols, and new integrated Bluetooth® SoC and MCU families that offer IoT device designers energy efficiency, high performance and trusted security for the smallest form factor IoT devices.

We plan to continue introducing products that expand the capabilities we offer in order to serve both current and emerging applications, enabling us to address new markets and expand our total available market opportunity.

During the three months ended April 1, 2023, we had no customer that represented more than 10% of our revenues.

During the six months ended July 1, 2023, 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 1, 2023.

The percentage of our revenues derived from outside of the United States was 84% during the three months ended April 1, 2023.

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 1, 2023.

The percentage of our revenues derived from outside of the United States was 86% during the six months ended July 1, 2023.

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)

Industrial & Commercial

The increase in revenues in the recent three-month period was due to increased revenues of $24.0 million from our Industrial & Commercial products offset in part by decreased revenues of $11.0 million from our Home & Life products.

Average selling prices of our products increased while unit volumes decreased in the recent three-month period.

The decrease in revenues in the recent three-month period was due to decreased revenues of $39.4 million from our Home & Life products offset in part by increased revenues of $21.1 million from our Industrial & Commercial products.

The decrease in revenues in the recent six-month period was due to decreased revenues of $50.5 million from our Home & Life products offset in part by increased revenues of $45.2 million from our Industrial & Commercial products.

Average selling prices of our products increased while unit volumes decreased in the recent three- and six-month periods.

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 decreased during the recent three-month period due to a decrease in gross profit for our Home & Life product group offset by an increase in gross profit for our Industrial & Commercial product group.

Gross profit decreased during the recent three- and six-month periods due to a decrease in gross profit for our Home & Life product group offset by an increase in gross profit for our Industrial & Commercial product group.

Gross margin decreased primarily due to variations in the price and costs of our products and variations in product mix.

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Three Months Ended

Six Months Ended

(in millions)

1 unchanged sentence

Percent of revenue

The increase in research and development expense in the recent three-month period was primarily due to increases of $8.3 million for personnel-related expenses, $1.2 million for new product introduction costs and $1.0 million for occupancy costs.

We expect that research and development expense will remain relatively stable in absolute dollars in the second quarter of fiscal 2023.

The increase in research and development expense in the recent three- and six-month periods was primarily due to increases of $4.9 million and $13.2 million, respectively, for personnel-related expenses and $0.4 million and $1.4 million, respectively, for occupancy costs, offset in part by decreases of $3.1 million and $1.9 million, respectively, for new product introduction costs.

We expect that research and development expense will decrease in absolute dollars in the third quarter of fiscal 2023.

Selling, General and Administrative

Three Months Ended

Six Months Ended

(in millions)

1 unchanged sentence

Percent of revenue

We expect that selling, general and administrative expense will remain relatively stable in absolute dollars in the second quarter of fiscal 2023.

The decrease in selling, general and administrative expense in the three- and six-month periods was primarily due to decreases of $4.9 million and $3.7 million, respectively, for personnel-related expenses, and $1.5 million and $4.2 million, respectively, for amortization of intangible assets.

We expect that selling, general and administrative expense will decrease in absolute dollars in the third quarter of fiscal 2023.

Interest Income and Other, Net

Interest income and other, net for the three months ended April 1, 2023 was $4.8 million compared to $1.5 million for the three months ended April 2, 2022.

The increase in interest income and other, net in the recent three-month period was primarily due to increased interest income earned as a result of higher market interest rate.

Interest income and other, net for the three and six months ended July 1, 2023 was $7.8 million and $12.6 million, respectively, compared to $3.4 million and $4.9 million for the three and six months ended July 2, 2022, respectively.

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

Interest Expense

Interest expense for the three months ended April 1, 2023 and April 2,2022 was $1.7 million.

Interest expense for the three and six months ended July 1, 2023 was $1.6 million and $3.3 million, respectively, compared to $1.7 million and $3.3 million for the three and six months ended July 2, 2022, respectively.

Provision for Income Taxes

Three Months Ended

Six Months Ended

(in millions)

1 unchanged sentence

Effective tax rate

The increase in the effective tax rate for the three months ended April 1, 2023 is primarily due to a decrease in the Company’s foreign tax rate benefit and an increase to nondeductible stock-based compensation, partially offset by an increase in the Company’s Federal research and development credit benefit year over year, further impacted by these items’ relation to pre-tax book income.

The increase in the effective tax rate for the three and six months ended July 1, 2023 is primarily due to a decrease to forecasted pre-tax book income, as the impact of permanent items is greater when pre-tax book income is lower, partially offset by a discrete state return-to-provision benefit recorded in the recent quarter.

Equity-method Earnings (Loss)

Equity-method earnings (loss) for the three months ended April 1, 2023 were $(1.0) million compared to $1.2 million for the three months ended April 2, 2022.

Equity-method earnings (loss) for the three and six months ended July 1, 2023 was $(0.1) million and $(1.1) million, respectively, compared to $0.0 million and $1.2 million for the three and six months ended July 2, 2022, respectively.

Business Outlook

The following represents our business outlook for the second quarter of fiscal 2023.

The following represents our business outlook for the third quarter of fiscal 2023.

Income Statement Item

1 unchanged sentence

Operating expenses

Effective tax rate

Diluted earnings per share

Diluted earnings (loss) per share

$(0.08) to $0.20

Liquidity and Capital Resources

Our principal sources of liquidity as of April 1, 2023 consisted of $1.2 billion in cash, cash equivalents and short-term investments, of which $0.8 billion was held by our U.S.

Our principal sources of liquidity as of July 1, 2023 consisted of $505.9 million in cash, cash equivalents and short-term investments, of which $241.1 million was held by our U.S.

The remaining balance was held by our foreign subsidiaries.

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Operating Activities

Net cash used in operating activities was $13.3 million during the three months ended April 1, 2023, compared to net cash provided of $85.2 million during the three months ended April 2, 2022.

Operating cash flows during the three months ended April 1, 2023 reflect our net income of $14.0 million, adjustments of $28.3 million for depreciation, amortization, stock-based compensation, equity-method earnings (loss) and deferred income taxes, and a net cash outflow of $55.6 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $87.7 million at April 1, 2023 from $71.4 million at December 31, 2022.

Net cash used in operating activities was $15.5 million during the six months ended July 1, 2023, compared to net cash provided of $83.4 million during the six months ended July 2, 2022.

Operating cash flows during the six months ended July 1, 2023 reflect our net income of $24.9 million, adjustments of $52.4 million for depreciation, amortization, stock-based compensation, equity-method earnings (loss) and deferred income taxes, and a net cash outflow of $92.8 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $98.3 million at July 1, 2023 from $71.4 million at December 31, 2022.

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

Our DSO was 32 days at April 1, 2023 and 25 days at December 31, 2022.

Inventory increased to $133.2 million at April 1, 2023 from $100.4 million at December 31, 2022.

Our DSO was 36 days at July 1, 2023 and 25 days at December 31, 2022.

Inventory increased to $145.5 million at July 1, 2023 from $100.4 million at December 31, 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.

Increased product demand and higher product costs have increased the value of the inventory we hold.

Our DOI was 129 days at April 1, 2023 and 90 days at December 31, 2022.

Inventory has increased as we have invested in building inventory to minimize potential supply disruptions and meet future demand.

Our DOI was 130 days at July 1, 2023 and 90 days at December 31, 2022.

Investing Activities

Net cash provided by investing activities was $254.3 million during the three months ended April 1, 2023, compared to net cash used of $217.4 million during the three months ended April 2, 2022.

Net cash provided by investing activities was $416.1 million during the six months ended July 1, 2023, compared to net cash used of $27.9 million during the six months ended July 2, 2022.

The increase in cash inflows was principally due to an increase in cash inflows of $445.4 million from net purchases, sales and maturities of marketable securities in the current period.

Financing Activities

Net cash used in financing activities was $24.5 million during the three months ended April 1, 2023, compared to net cash used of $166.5 million during the three months ended April 2, 2022.

The decrease in cash outflows was principally due to a decrease of $140.2 million for repurchases of our common stock in the current period.

Net cash used in financing activities was $665.7 million during the six months ended July 1, 2023, compared to net cash used of $586.7 million during the six months ended July 2, 2022.

The increase in cash outflows was principally due to $536.1 million in payments on debt in the current period, offset by a decrease of $377.9 million for repurchases of our common stock and $80.0 million in proceeds from our revolving line of credit in the current period.

Discontinued Operations

Net cash used in discontinued operations was zero during the three months ended April 1, 2023, compared to net cash used of $10.0 million during the three months ended April 2, 2022 related to income tax payments.

As of April 1, 2023, our debt included $535 million principal amount of convertible senior notes (the “2025 Notes”).

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

We have an option to increase the size of the borrowing capacity of the revolving credit facility by up to the greater of an aggregate of $250 million and 100% of EBITDA, plus an amount that would not cause a secured leverage ratio to exceed 3.25 to 1.00, subject to certain conditions.

On March 22, 2023, we issued a notice of redemption for the 2025 Notes, which will occur on June 20, 2023, for any of the 2025 Notes outstanding that have not been previously converted.

We have irrevocably elected cash settlement for the principal amount of the 2025 Notes and intend to settle any excess value with a combination of shares of our common stock and cash for fractional shares, if any.

Net cash used in discontinued operations was zero during the six months ended July 1, 2023, compared to net cash used of $38.6 million during the six months ended July 2, 2022 related to income tax payments.

As of July 1, 2023, our debt included a $400 million revolving credit facility.

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

In June 2023, we borrowed $80 million under the revolving credit facility.

In June 2023, we paid $535.0 million in cash and issued 0.9 million shares of common stock in connection with the settlement of our 2025 convertible senior notes.

Capital Requirements

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interest rates.

A 100 basis point decline in yield on our investment portfolio holdings as of April 1, 2023 would decrease our future annual interest income by approximately $10.5 million.

A 100 basis point decline in yield on our investment portfolio holdings as of July 1, 2023 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 April 1, 2023.

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

At July 1, 2023, we had $80.0 million outstanding under our credit facility.

A 100 basis point increase in interest rates would increase our future annual interest rate expense by approximately $0.8 million.

Foreign currency exchange rate risk

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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