What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-24 compared with 2024-04-24 · 71 added, 74 removed, 155 unchanged (48% of the section changed)

5 unchanged sentences

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

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

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

Our second quarter of fiscal 2024 ended June 29, 2024.

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

Impact of Macroeconomic Conditions

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.

We have experienced a decline in revenues, as our customers have slowed 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 $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.

Revenues decreased $99.5 million in the recent quarter compared to the second quarter of fiscal 2023 due to decreased revenues from our Home & Life products and our Industrial & Commercial products.

Gross profit decreased $67.2 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.

Gross margin decreased to 52.7% in the recent quarter compared to 58.7% in the second quarter of fiscal 2023, and increased slightly compared to 51.8% in the first quarter of fiscal 2024, primarily due to variations in customer and product mix.

Operating expenses decreased by $2.0 million in the recent quarter compared to the second quarter of fiscal 2023 primarily due to lower personnel-related costs as a result of the workforce reduction in the fourth quarter of fiscal 2023, and a decrease in outside service costs.

Operating loss in the recent quarter was $48.0 million compared to operating income of $17.2 million in the second quarter of fiscal 2023.

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

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.

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 March 30, 2024, we had no customer that represented more than 10% of our revenues.

We ended the second quarter of fiscal 2024 with $339.2 million in cash, cash equivalents, and short-term investments.

Net cash used in operating activities was $55.7 million during the current year six-month period.

Accounts receivable were $41.2 million at June 29, 2024, representing 26 days sales outstanding (“DSO”).

Inventory was $166.1 million at June 29, 2024, representing 217 days of inventory (“DOI”).

During the six months ended June 29, 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 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.

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 June 29, 2024.

The percentage of our revenues derived from outside of the United States was 94% during the six months ended June 29, 2024.

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

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

Three Months Ended

2024 April 1,

Three Months Ended Six Months Ended

2023 June 29,

Revenues 100.0 % 100.0 % 100.0 % 100.0 %

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Income (loss) before income taxes (31.3) 9.5 (40.7) 9.4

Provision (benefit) for income taxes (0.4) 3.1

Provision for income taxes 25.2 5.0 14.4 4.1

Equity-method loss 0.0 0.0 0.0 (0.2)

Net income (loss) (56.5) % 4.5 % (55.1) % 5.1 %

Three Months Ended

(in millions) March 30,

2024 April 1,

Three Months Ended Six Months Ended

(in millions) June 29,

2023 Change %

Change June 29,

2023 Change %

Industrial & Commercial $ 88.1 $ 165.3 $ (77.2) (46.7) % $ 153.3 $ 316.0 $ (162.7) (51.5) %

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The decrease in revenues in the recent three-month period was due to decreased revenues of $77.2 million from our Industrial & Commercial products and decreased revenues of $22.3 million from our Home & Life products.

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

The decrease in revenues in the recent six-month period was due to decreased revenues of $162.7 million from our Industrial & Commercial products and decreased revenues of $77.2 million from our Home & Life products.

Revenues decreased in the recent three and six-month periods as a result of decreases in average selling prices of our products and unit volumes.

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.

Three Months Ended

(in millions) March 30,

2024 April 1,

Three Months Ended Six Months Ended

(in millions) June 29,

2023 Change June 29,

Gross profit $ 76.6 $ 143.8 $ (67.2) $ 131.7 $ 297.6 $ (165.9)

Gross margin 52.7 % 58.7 % (6.0) % 52.3 % 60.5 % (8.2) %

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.

Gross profit decreased during the recent three and six-month periods due to decreases in gross profit for our Home & Life and Industrial & Commercial product groups, 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, with the percentage of revenues attributed to direct customers increasing as compared to revenue from distributors in the three and six-month periods.

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

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Research and Development

Three Months Ended

(in millions) March 30,

2024 April 1,

Three Months Ended Six Months Ended

(in millions) June 29,

2023 Change %

Change June 29,

2023 Change %

Research and development $ 85.9 $ 85.9 $ — — % $ 166.6 $ 175.3 $ (8.7) (5.0) %

Percent of revenue 59.1 % 35.1 % 66.2 % 35.7 %

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.

Research and development expense in the recent three-month period remained relatively stable, with a decrease of $2.2 million for personnel-related expenses as a result of our restructuring activities, offset by an increase of $2.2 million in software expense.

The decrease in research and development expense in the recent six-month period was primarily due to decreases of $11.4 million for personnel-related expenses as a result of our restructuring activities and $1.7 million for technical services, partially offset by an increase of $4.1 million in software expense.

We expect that research and development expense will remain relatively stable in absolute dollars in the third quarter of fiscal 2024.

Selling, General and Administrative

Three Months Ended

(in millions) March 30,

2024 April 1,

Three Months Ended Six Months Ended

(in millions) June 29,

2023 Change %

Change June 29,

2023 Change %

Selling, general and administrative $ 38.7 $ 40.7 $ (2.0) (4.9) % $ 72.2 $ 85.6 $ (13.4) (15.7) %

Percent of revenue 26.6 % 16.6 % 28.7 % 17.4 %

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.

The decrease in selling, general and administrative expense in the three and six-month periods was primarily due to $0.3 million and $9.8 million decreases, respectively, in personnel-related costs as a result of our restructuring activities and $1.6 million and $3.3 million decreases, respectively, in outside services.

We expect that selling, general and administrative expense will remain relatively stable in absolute dollars in the third quarter of fiscal 2024.

Interest Income and Other, Net

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 income and other, net for the three and six months ended June 29, 2024 was $2.8 million and $5.5 million, respectively, compared to $7.8 million and $12.6 million for the three and six months ended July 1, 2023, respectively.

The decrease in interest income and other, net in the recent three and six-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 first three 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 months ended March 30, 2024 was $0.5 million, compared to $1.7 million for the three months ended April 1, 2023, respectively.

Interest expense for the three and six months ended June 29, 2024 was $0.3 million and $0.8 million, respectively, compared to $1.6 million and $3.3 million for the three and six months ended July 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

(in millions) March 30,

2024 April 1,

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

Three Months Ended Six Months Ended

(in millions) June 29,

2023 Change June 29,

Provision for income taxes $ 36.7 $ 12.3 $ 24.4 $ 36.3 $ 20.1 $ 16.2

Effective tax rate (80.6) % 53.0 % (35.4) % 44.6 %

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.

The increase in the provision for income taxes for the three and six months ended June 29, 2024 is primarily due to a change in our valuation allowance assessment and subsequent recording of a valuation allowance against certain of our U.S.

and Singapore deferred tax assets in the three months ended June 29, 2024.

A valuation allowance is required to be established when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

In the three months ended June 29, 2024, we determined that there is a need for the valuation allowance due to a forecasted three-year cumulative pre-tax loss for the current and two preceding years in conjunction with the downturn in the semiconductor industry.

We intend to maintain the valuation allowance until our ability to forecast sufficient future sources of taxable income is reestablished.

Equity-method Loss

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

Equity-method loss for the three and six months ended July 1, 2023 was $0.1 million and $1.1 million, respectively.

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

Business Outlook

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 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.

Our principal sources of liquidity as of June 29, 2024 consisted of $339.2 million in cash, cash equivalents and short-term investments, of which $156.7 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 $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.

Net cash used in operating activities was $55.7 million during the six months ended June 29, 2024, compared to $15.5 million during the six months ended July 1, 2023.

Operating cash flows during the six months ended June 29, 2024 reflect our net loss of $138.7 million, adjustments of $84.6 million for depreciation, amortization, stock-based compensation, and deferred income taxes, and a net cash outflow of $1.5 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $41.2 million at June 29, 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 DSO decreased to 26 days at June 29, 2024 from 30 days at December 30, 2023.

Inventory decreased to $166.1 million at June 29, 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.

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.

Our DOI was 217 days at June 29, 2024 and 407 days at December 30, 2023.

Investing Activities

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.

Net cash provided by investing activities was $121.1 million during the six months ended June 29, 2024, compared to $416.1 million during the six months ended July 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 $315.5 million in the current period.

Financing Activities

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.

Net cash used in financing activities was $52.1 million during the six months ended June 29, 2024, compared to net cash used of $665.7 million during the six months ended July 1, 2023.

The decrease in cash outflows was principally due to $536.1 million in payments on debt and $201.1 million for repurchases of common stock, partially offset by $80.0 million in proceeds from our revolving line of credit in the prior year period.

As of June 29, 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.

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

As of June 29, 2024, no amounts were outstanding on the revolving credit facility.

The Company was granted a waiver of compliance for the minimum interest coverage ratio through March 29, 2025.

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, 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, 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 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 March 30, 2024 would decrease our future annual interest income by approximately $2.5 million.

A 100 basis point decline in yield on our investment portfolio holdings as of June 29, 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.

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

While we have drawn from the credit facility in the past, we have no borrowings as of June 29, 2024.

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

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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