What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-24 compared with 2023-11-01 · 92 added, 113 removed, 137 unchanged (60% of the section changed)

5 unchanged sentences

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

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

Our third quarter of fiscal 2022 ended October 1, 2022.

Our first quarter of fiscal 2024 ended March 30, 2024.

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

Impact of Macroeconomic Conditions

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

In the third quarter, we experienced a decline in revenues, and expect a continued decline into the fourth quarter, as our customers are slowing purchases to reduce existing inventories in a softening market.

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

We have experienced a decline in revenues, as our customers are slowing purchases to reduce existing inventories in a softening market.

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 and/or customers, and other items identified under “Risk Factors” below, all of which are uncertain and cannot be predicted.

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Current Period Highlights

Revenues decreased $66.1 million in the recent quarter compared to the third quarter of fiscal 2022 due to decreased revenues from our Home & Life products and our Industrial & Commercial products.

Gross profit decreased $46.6 million during the same period due to decreased gross profit from our Home & Life products and our Industrial & Commercial products.

Gross margin decreased to 58.4% in the recent quarter compared to 61.4% in the third 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 $28.6 million in the recent quarter compared to the third quarter of fiscal 2022 due primarily to cost containment measures taken in the third quarter, including the elimination of certain bonuses and certain other variable compensation through the remainder of fiscal 2023, a reduction in the use of contract employees, and the suspension of all non-essential travel.

These cost containment measures are intended to be temporary in nature.

Operating expenses also decreased due to reduced stock-based compensation from the expense reversal to adjust the estimated levels of achievement related to unvested performance stock units.

Operating income in the recent quarter was $12.2 million compared to $30.2 million in the third quarter of fiscal 2022.

Revenues decreased $140.4 million in the recent quarter compared to the first quarter of fiscal 2023 due to decreased revenues from our Home & Life products and our Industrial & Commercial products.

Gross profit decreased $98.8 million during the same period due to decreased gross profit from our Home & Life products and our Industrial & Commercial

Gross margin decreased to 51.8% in the recent quarter compared to 62.3% in the first quarter of fiscal 2023, and increased slightly compared to 50.6% in the fourth quarter of fiscal 2023, primarily due to variations in customer and product mix.

Operating expenses decreased by $20.1 million in the recent quarter compared to the first quarter of fiscal 2023 due primarily to lower personnel-related costs as a result of the workforce reduction in the fourth quarter of fiscal 2023.

Operating loss in the recent quarter was $59.1 million compared to operating income of $19.6 million in the first quarter of fiscal 2023.

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

We ended the third quarter of fiscal 2023 with $417.1 million in cash, cash equivalents and short-term investments.

Net cash used in operating activities was $48.9 million during the current year nine-month period.

Accounts receivable were $102.1 million at September 30, 2023, representing 45 days sales outstanding (“DSO”).

Inventory was $167.6 million at September 30, 2023, representing 178 days of inventory (“DOI”).

During the third quarter, we repaid $35.0 million in borrowings under our revolving credit facility.

In the third quarter of fiscal 2023, we acquired 0.1 million shares of our common stock for $16.0 million.

We ended the first quarter of fiscal 2024 with $332.7 million in cash, cash equivalents, and short-term investments.

Net cash used in operating activities was $71.8 million during the current year three-month period.

Accounts receivable were $32.6 million at March 30, 2024, representing 28 days sales outstanding (“DSO”).

Inventory was $198.2 million at March 30, 2024, representing 348 days of inventory (“DOI”).

During the first quarter, we repaid $45.0 million in borrowings under our revolving credit facility.

We have continued to diversify our product portfolio and introduce new products and solutions with added functionality and integration.

In the first nine 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 nine months ended September 30, 2023, we had no customer that represented more than 10% of our revenues.

During the three months ended March 30, 2024, we had no customer that represented more than 10% of our revenues.

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

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

Two of our distributors who sell to our customers, Arrow Electronics and Edom Technology, each represented more than 10% of our revenues during the nine months ended September 30, 2023.

The percentage of our revenues derived from outside of the United States was 87% during the nine months ended September 30, 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 three months ended March 30, 2024.

The percentage of our revenues derived from outside of the United States was 95% during the three months ended March 30, 2024.

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

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Results of Operations

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

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

Revenues are generated predominately by sales of our products.

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

Interest expense on our convertible senior notes included contractual interest, amortization of debt issuance costs, and for periods prior to fiscal 2022, amortization of the debt discount.

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

Provision for Income Taxes.

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

Equity-method Earnings (Loss).

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

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

Equity-method Loss.

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

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

Three Months Ended

Nine Months Ended

September 30,

2024 April 1,

Revenues 100.0 % 100.0 %

Cost of revenues 48.2 37.7

Gross profit 51.8 62.3

Operating expenses:

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Operating expenses 107.4 54.4

Operating income

Operating income (loss) (55.6) 7.9

Other income (expense):

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Interest expense (0.5) (0.7)

Income before income taxes

Provision for income taxes

Equity-method earnings (loss)

Income (loss) before income taxes (53.5) 9.2

Provision (benefit) for income taxes (0.4) 3.1

Equity-method loss 0.0 (0.4)

Net income (loss) (53.1) % 5.7 %

Three Months Ended

Nine Months Ended

September 30,

(in millions)

(in millions) March 30,

2024 April 1,

2023 Change %

Industrial & Commercial $ 65.3 $ 150.7 $ (85.4) (56.7) %

The decrease in revenues in the recent three-month period was due to decreased revenues of $41.4 million from our Home & Life products and decreased revenues of $24.6 million from our Industrial & Commercial products.

The decrease in revenues in the recent nine-month period was due to decreased revenues of $91.9 million from our Home & Life products offset in part by increased revenues of $20.5 million from our Industrial & Commercial products.

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

Home & Life 41.1 96.1 (55.0) (57.2) %

$ 106.4 $ 246.8 $ (140.4) (56.9) %

The decrease in revenues in the recent three-month period was due to decreased revenues of $85.5 million from our Industrial & Commercial products and decreased revenues of $55.0 million from our Home & Life products.

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

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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As a result, the current demand environment for our products is experiencing high volatility and general weakness, with customers more frequently requesting cancellations, changes to delivery dates, and price and payment term concessions.

Faced with these conditions and related to revenue that might otherwise occur in a later period, we have offered certain customers and distributors extended payment terms with respect to a portion of our Q3 2023 revenue, and, to a lesser extent, price discounts.

Three Months Ended

Nine Months Ended

September 30,

(in millions)

Gross profit decreased during the recent three- and nine-month periods due to a decrease in gross profit for our Home & Life product group and a decrease in gross profit for our Industrial & Commercial product group, primarily as a result of the decrease in unit volumes in the periods.

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

(in millions) March 30,

2024 April 1,

Gross profit $ 55.1 $ 153.9 $ (98.8)

Gross margin 51.8 % 62.3 % (10.5) %

Gross profit decreased during the recent three-month period due to a decrease in gross profit for our Home & Life product group and a decrease in gross profit for our Industrial & Commercial product group, primarily as a result of the decrease in unit volumes in the periods.

Gross margin decreased primarily due to variations in customer and product mix.

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

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Three Months Ended

Nine Months Ended

September 30,

(in millions)

(in millions) March 30,

2024 April 1,

2023 Change %

Research and development $ 80.7 $ 89.4 $ (8.7) (9.7) %

Percent of revenue 75.8 % 36.2 %

The decrease in research and development expense in the recent three-month period was primarily due to a decrease of $4.0 million for personnel-related expenses, with additional decreases of $1.0 million for amortization of intangible assets and $0.9 million for new product introduction costs, partially offset by an increase of $0.7 million in occupancy costs.

Within personnel-related costs, bonus and variable compensation decreased $8.7 million as a result of the cost containment efforts in the current period, offset in part by an increase of $3.8 million in salary expense.

The increase in research and development expense in the recent nine-month period was primarily due to an increase of $9.2 million for personnel-related expenses, with additional increases of $3.1 million for IT-related costs and $2.2 million for occupancy costs.

Within personnel-related expenses, increases of $13.8 million in salary expense, $3.2 million in stock compensation, and $4.2 million in termination benefits were partially offset by a $15.6 million decrease in bonuses and variable compensation from lower attainment and the cost containment efforts in the third quarter.

Other decreases to research and development expense in the recent

nine-month period were $3.7 million for new product introduction costs and $3.1 million for the amortization of intangible assets.

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

The decrease in research and development expense in the recent three-month period was primarily due to decreases of $9.2 million for personnel-related expenses as a result of our restructuring activities and $1.1 million for technical services, partially offset by an increase of $1.8 million in new product introduction costs.

We expect that research and development expense will increase in absolute dollars in the second quarter of fiscal 2024.

Selling, General and Administrative

Three Months Ended

Nine Months Ended

September 30,

(in millions)

(in millions) March 30,

2024 April 1,

2023 Change %

Selling, general and administrative $ 33.6 $ 44.9 $ (11.3) (25.2) %

Percent of revenue 31.5 % 18.2 %

The decrease in selling, general and administrative expense in the three-month period was primarily due to an $18.2 million decrease in personnel-related costs, which included a $9.9 million decrease in stock compensation driven by a decline in expected achievement for certain performance-based awards, and cost containment efforts in the current period resulting in decreases of $6.1 million in certain bonuses and variable compensation, and $1.1 million in travel expenses.

Additionally outside services decreased by $3.7 million and amortization of intangible assets decreased by $0.8 million.

The decrease in selling, general and administrative expense in the nine-month period was due primarily to a $22.8 million decrease to personnel-related costs, which included a $15.0 decrease in certain bonus and variable compensation as a result of the cost containment efforts in the third quarter and a $9.5 million reduction in stock compensation driven by a decline in expected achievement for certain performance-based awards, partially offset by an increase in salary expense of $2.0 million.

Additionally, amortization of intangible assets decreased by $5.0 million and outside services decreased by $3.9 million.

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

The decrease in selling, general and administrative expense in the three-month period was primarily due to a $9.4 million decrease in personnel-related costs as a result of our restructuring activities and a $1.7 million decrease in outside services.

We expect that selling, general and administrative expense will increase in absolute dollars in the second quarter of fiscal 2024.

Interest Income and Other, Net

Interest income and other, net for the three and nine months ended September 30, 2023 was $2.9 million and $15.6 million, respectively, compared to $4.7 million and $9.6 million for the three and nine months ended October 1, 2022, respectively.

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

Interest income and other, net for the three months ended March 30, 2024 was $2.7 million, compared to $4.8 million for the three months ended April 1, 2023.

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

Interest Expense

Interest expense for the three and nine months ended September 30, 2023 was $1.4 million and $4.6 million, respectively, compared to $1.5 million and $4.9 million for the three and nine months ended October 1, 2022, respectively.

Interest expense for the three months ended March 30, 2024 was $0.5 million, compared to $1.7 million for the three months ended April 1, 2023, respectively.

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

Provision for Income Taxes

Three Months Ended

Nine Months Ended

September 30,

(in millions)

Provision for income taxes

(in millions) March 30,

2024 April 1,

Provision (benefit) for income taxes $ (0.4) $ 7.8 $ (8.2)

Effective tax rate 0.7 % 35.7 %

The decrease in the effective tax rate for the three months ended September 30, 2023 as compared to the prior period was primarily due to a decrease in nondeductible stock compensation and a delay in the application of unfavorable foreign tax credit Treasury regulations that was announced during the recent quarter, partially offset by the increased impact of global intangible low-taxed income relative to lower pre-tax book income.

The increase in the effective tax rate for the nine months ended September 30, 2023 as compared to the prior period was primarily due to the increased impact of global intangible low-taxed income relative to lower pre-tax book income, partially offset by discrete U.S.

federal and state return-to-provision benefits recorded in the recent nine-month period.

Equity-method Earnings (Loss)

Equity-method earnings (loss) for the three and nine months ended September 30, 2023 was $(0.1) million and $(1.2) million, respectively, compared to $1.8 million and $3.0 million for the three and nine months ended October 1, 2022, respectively.

The decrease in the provision for income taxes for the three months ended March 30, 2024 is primarily due to reporting a tax benefit on pre-tax book loss for the current period compared to tax expense on pre-tax book income for the three months ended April 1, 2023.

The Company estimates that its annual effective tax rate will be close to zero for the current year.

Thus, discrete items may have a disproportionate impact on the calculation of the overall effective tax rate.

Equity-method Loss

Equity-method loss for the three months ended April 1, 2023 was $1.0 million.

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

Business Outlook

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

Income Statement Item

$70 million to $100 million

Operating expenses

Diluted earnings (loss) per share

The following represents our business outlook for the second quarter of fiscal 2024.

Income Statement Item Estimate

Revenues $135 million to $145 million

Gross margin 53%

Operating expenses $125 million

Diluted loss per share

$(1.61) to $(1.45)

Liquidity and Capital Resources

Our principal sources of liquidity as of September 30, 2023 consisted of $417.1 million in cash, cash equivalents and short-term investments, of which $268.6 million was held by our U.S.

Our principal sources of liquidity as of March 30, 2024 consisted of $332.7 million in cash, cash equivalents and short-term investments, of which $191.7 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 $48.9 million during the nine months ended September 30, 2023, compared to net cash provided of $127.4 million during the nine months ended October 1, 2022.

Operating cash flows during the nine months ended September 30, 2023 reflect our net income of $35.3 million, adjustments of $71.6 million for depreciation, amortization, stock-based compensation, equity-method earnings (loss) and deferred income taxes, and a net cash outflow of $155.7 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $102.1 million at September 30, 2023 from $71.4 million at December 31, 2022.

The increase in accounts receivable resulted primarily from variations in the timing of collections and billings, with a majority of our shipments occurring in the final month of the current quarter.

Our DSO increased to 45 days at September 30, 2023 from 25 days at December 31, 2022.

Incentives offered to customers in the third quarter of 2023 included temporarily extending payment terms in certain cases.

While the majority of these actions are intended to be temporary in nature, the continuation of these concessions may result in additional or more permanent increases to our payment terms and further increase our collection times.

Inventory increased to $167.6 million at September 30, 2023 from $100.4 million at December 31, 2022.

Net cash used in operating activities was $71.8 million during the three months ended March 30, 2024, compared to $13.3 million during the three months ended April 1, 2023.

Operating cash flows during the three months ended March 30, 2024 reflect our net loss of $56.5 million, adjustments of $21.1 million for depreciation, amortization, stock-based compensation, equity-method loss, and deferred income taxes, and a net cash outflow of $36.3 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $32.6 million at March 30, 2024 from $29.3 million at December 30, 2023.

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

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

Inventory increased to $198.2 million at March 30, 2024 from $194.3 million at December 30, 2023.

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

Inventory has increased in part due to us investing in building inventory to minimize potential supply disruptions and meet forecasted future demand.

Our DOI was 178 days at September 30, 2023 and 90 days at December 31, 2022.

We have invested in building inventory to minimize potential supply disruptions and meet forecasted future demand.

Our DOI was 348 days at March 30, 2024 and 407 days at December 30, 2023.

Investing Activities

Net cash provided by investing activities was $426.4 million during the nine months ended September 30, 2023, compared to net cash provided by $40.8 million during the nine months ended October 1, 2022.

The increase in cash inflows was principally due to cash provided by net purchases, sales and maturities of marketable securities of $445.3 million in the current period.

Net cash provided by investing activities was $81.5 million during the three months ended March 30, 2024, compared to $254.3 million during the three months ended April 1, 2023.

The decrease in cash inflows was principally due to a decrease in cash provided by net purchases, sales, and maturities of marketable securities of $190.8 million in the current period.

Financing Activities

Net cash used in financing activities was $717.5 million during the nine months ended September 30, 2023, compared to net cash used of $690.1 million during the nine months ended October 1, 2022.

The increase in cash outflows was principally due to $571.2 million in payments on debt in the current period, offset by a decrease of $464.6 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 nine months ended September 30, 2023, compared to net cash used of $69.5 million during the nine months ended October 1, 2022 related to income tax payments.

As of September 30, 2023, we had a $400 million revolving credit facility.

Net cash used in financing activities was $45.7 million during the three months ended March 30, 2024, compared to net cash used of $24.5 million during the three months ended April 1, 2023.

The increase in cash outflows was principally due to $45.0 million in payments on debt in the current period.

As of March 30, 2024, we had a $400 million revolving credit facility.

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

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

In the third quarter, we repaid $35.0 million in borrowings under our revolving credit facility.

As of September 30, 2023, the outstanding balance in the revolving credit facility is $45.0 million.

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.

As of March 30, 2024, no amounts were outstanding on the revolving credit facility.

Capital Requirements

Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies and the expansion of our sales and marketing activities.

We believe our existing cash, cash equivalents, investments, credit under our credit facility, and cash generated from operations are sufficient to meet our short-term (i.e., over at least the next twelve months) and long-term capital requirements, although we could be required, or could elect, to seek additional funding prior to that time.

We believe our existing cash, cash equivalents, investments, and cash generated from operations are sufficient to meet our short-term (i.e., over at least the next twelve months) and long-term capital requirements, although we could be required, or could elect, to seek additional funding prior to that time.

We may enter into acquisitions or strategic arrangements in the future which also could require us to seek additional equity or debt financing.

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interest rates.

A 100 basis point decline in yield on our investment portfolio holdings as of September 30, 2023 would decrease our future annual interest income by approximately $3.2 million.

A 100 basis point decline in yield on our investment portfolio holdings as of March 30, 2024 would decrease our future annual interest income by approximately $2.5 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.

At September 30, 2023, we had $45.0 million outstanding under our credit facility.

A 100 basis point increase in interest rates would increase our future annual interest rate expense by approximately $0.5 million.

While we have drawn from the credit facility in the past, we have no borrowings as of March 30, 2024.

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

Foreign currency exchange rate risk

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

dollars are recorded in the Condensed Consolidated Statements of Income.

dollars are recorded in the Condensed Consolidated Statements of Operations.

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