What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-04 compared with 2024-07-24 · 86 added, 72 removed, 154 unchanged (51% of the section changed)

5 unchanged sentences

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

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

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

Our third quarter of fiscal 2024 ended September 28, 2024.

Our third quarter of fiscal 2023 ended September 30, 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 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.

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.

In recent years, the global economic environment has experienced inflationary pressure, high interest rates, and geopolitical tension, and we have experienced declines in revenues as our customers slowed purchases to reduce existing inventories in a softening market.

While certain conditions have been improving during fiscal 2024, including deceleration of inflation and lowering of interest rates in certain geographies, there continues to be uncertainty regarding overall macroeconomic conditions, including increased geopolitical tensions, risk of recessions, and the effects of potential trade policies.

Although we have seen sequential improvements in revenues over the course of fiscal 2024, the extent of the continued impact, or any new impact, of macroeconomic conditions on our operational and financial performance will depend on future developments, their impact to the business of our suppliers and/or customers, and other items identified under the section titled “Risk Factors” below, all of which are uncertain and cannot be predicted.

Any 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.

We are a leader in secure, intelligent wireless technology for a more connected world.

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Current Period Highlights

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 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.

Revenues decreased $37.4 million in the recent quarter compared to the third quarter of fiscal 2023 due to decreased revenues from our Home & Life products and our Industrial & Commercial products.

Gross profit decreased $28.7 million during the same period primarily as a result of a decrease in revenues.

Gross margin decreased to 54.3% in the recent quarter compared to 58.4% in the third quarter of fiscal 2023, and increased compared to 52.7% in the second quarter of fiscal 2024, primarily due to variations in customer and product mix.

Operating expenses increased by $13.2 million in the recent quarter compared to the third quarter of fiscal 2023 primarily due to higher personnel-related costs.

Operating loss in the recent quarter was $29.7 million compared to operating income of $12.2 million in the third quarter of fiscal 2023.

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

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.

We ended the third quarter of fiscal 2024 with $369.7 million in cash, cash equivalents, and short-term investments.

Net cash used in operating activities was $24.0 million during the current year nine-month period.

Accounts receivable were $48.9 million at September 28, 2024, representing 26 days sales outstanding (“DSO”).

Inventory was $139.5 million at September 28, 2024, representing 165 days of inventory (“DOI”).

During the nine months ended September 28, 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 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.

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 28, 2024.

The percentage of our revenues derived from outside of the United States was 93% during the nine months ended September 28, 2024.

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

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costs of personnel and equipment associated with manufacturing support, logistics, and quality assurance;

costs of software royalties, other intellectual property license costs, and certain acquired intangible assets;

costs of royalties, other intellectual property license costs, and certain acquired intangible assets;

and an allocated portion of our occupancy costs.

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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 Six Months Ended

2023 June 29,

Three Months Ended Nine Months Ended

September 28,

2024 September 30,

2023 September 28,

2024 September 30,

Revenues 100.0 % 100.0 % 100.0 % 100.0 %

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Net income (loss) (17.1) % 5.1 % (40.0) % 5.1 %

Three Months Ended Six Months Ended

(in millions) June 29,

Three Months Ended Nine Months Ended

(in millions) September 28,

2024 September 30,

2023 Change %

Change June 29,

Change September 28,

2024 September 30,

2023 Change %

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The decrease in revenues in the recent three-month period was due to decreased revenues of $24.5 million from our Industrial & Commercial products and decreased revenues of $12.9 million from our Home & Life products.

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 decrease in revenues in the recent nine-month period was due to decreased revenues of $187.2 million from our Industrial & Commercial products and decreased revenues of $90.1 million from our Home & Life products.

Revenues decreased in the recent three and nine-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.

In general, as our products become more mature, we expect to experience decreases in average selling prices.

The overall demand environment for our customers’ products is generally weaker than previously anticipated.

Customers are also seeking to reduce inventory levels relative to amounts they held during the recent period of widespread supply chain disruptions.

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 Six Months Ended

(in millions) June 29,

2023 Change June 29,

Three Months Ended Nine Months Ended

(in millions) September 28,

2024 September 30,

2023 Change September 28,

2024 September 30,

Gross profit $ 90.3 $ 119.0 $ (28.7) $ 222.0 $ 416.7 $ (194.7)

Gross margin 54.3 % 58.4 % (4.1) % 53.1 % 59.9 % (6.8) %

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.

Gross profit decreased during the recent three and nine-month periods primarily as a result of decreases in revenues in the 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 Six Months Ended

(in millions) June 29,

Three Months Ended Nine Months Ended

(in millions) September 28,

2024 September 30,

2023 Change %

Change June 29,

Change September 28,

2024 September 30,

2023 Change %

1 unchanged sentence

Percent of revenue 50.0 % 38.8 % 59.7 % 36.6 %

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.

Research and development expense in the recent three-month period increased, with an increase of $3.2 million for personnel-related costs as a result of lower expenses in the prior year period due to cost containment measures, and an increase of $2.0 million in software expense, partially offset by a decrease of $0.8 million for amortization of intangible assets.

The decrease in research and development expense in the recent nine-month period was primarily due to decreases of $8.2 million for personnel-related expenses as a result of our restructuring activities and $2.1 million for technical services, partially offset by an increase of $6.2 million in software expense.

Selling, General and Administrative

Three Months Ended Six Months Ended

(in millions) June 29,

Three Months Ended Nine Months Ended

(in millions) September 28,

2024 September 30,

2023 Change %

Change June 29,

Change September 28,

2024 September 30,

2023 Change %

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Percent of revenue 22.1 % 13.6 % 26.1 % 16.3 %

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.

The increase in selling, general and administrative expense in the recent three-month period was primarily due to a $9.3 million increase in personnel-related costs due to lower costs in the prior year period as a result of reduced stock compensation costs driven by a decline in expected achievement for certain performance-based awards, and cost containment efforts, partially offset by a $0.4 million decrease in occupancy costs.

The decrease in selling, general and administrative expense in the recent nine-month period was primarily due to a $2.8 million decrease in outside services, a $0.7 million decrease in occupancy costs, and a $0.4 million decrease in personnel-related costs.

Interest Income and Other, Net

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 income and other, net for the three and nine months ended September 28, 2024 was $3.5 million and $9.0 million, respectively, compared to $2.9 million and $15.6 million for the three and nine months ended September 30, 2023,

respectively.

The increase in interest income and other, net in the recent three-month period was primarily due to higher interest rates earned on the investments.

The decrease in interest income and other, net in the recent nine-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 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.

Interest expense for the three and nine months ended September 28, 2024 was $0.3 million and $1.1 million, respectively, compared to $1.4 million and $4.6 million for the three and nine months ended September 30, 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 Six Months Ended

(in millions) June 29,

2023 Change June 29,

Three Months Ended Nine Months Ended

(in millions) September 28,

2024 September 30,

2023 Change September 28,

2024 September 30,

Provision for income taxes $ 2.0 $ 3.4 $ (1.4) $ 38.3 $ 23.5 $ 14.8

Effective tax rate (7.6) % 24.7 % (29.7) % 40.0 %

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.

The change in the provision for income taxes for the three and nine months ended September 28, 2024 is primarily due to the establishment of a valuation allowance against certain of our U.S.

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

Because of the valuation allowance, we are unable to recognize the full tax benefit of the pre-tax losses incurred in those jurisdictions in the current year.

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.

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 and six months ended July 1, 2023 was $0.1 million and $1.1 million, respectively.

Equity-method loss for the three and nine months ended September 30, 2023 was $0.1 million and $1.2 million, respectively.

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

Liquidity and Capital Resources

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.

Our principal sources of liquidity as of September 28, 2024 consisted of $369.7 million in cash, cash equivalents and short-term investments, of which $183.8 million was held by our U.S.

The remaining balance was held by our foreign subsidiaries.

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

Our cash equivalents and short-term investments consisted of government debt securities, which include municipal bonds and U.S.

government securities;

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Operating Activities

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.

Net cash used in operating activities was $24.0 million during the nine months ended September 28, 2024, compared to $48.9 million during the nine months ended September 30, 2023.

Operating cash flows during the nine months ended September 28, 2024 reflect our net loss of $167.2 million, adjustments of $111.4 million for depreciation, amortization, stock-based compensation, and deferred income taxes, and a net cash inflow of $31.8 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $48.9 million at September 28, 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 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.

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

Our DSO decreased to 26 days at September 28, 2024 from 30 days at December 30, 2023.

Inventory decreased to $139.5 million at September 28, 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.

Our DOI was 165 days at September 28, 2024 and 407 days at December 30, 2023.

Investing Activities

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.

Net cash provided by investing activities was $151.3 million during the nine months ended September 28, 2024, compared to $426.4 million during the nine months ended September 30, 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 $298.6 million in the current period.

Financing Activities

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.

Net cash used in financing activities was $51.7 million during the nine months ended September 28, 2024, compared to net cash used of $717.5 million during the nine months ended September 30, 2023.

The decrease in cash outflows was principally due to $571.2 million in payments on debt and $217.1 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.

As of September 28, 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 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.

As of September 28, 2024, no amounts were outstanding on the revolving credit facility.

We were granted a waiver of compliance for the minimum interest coverage ratio through March 29, 2025.

In the event we are not able to achieve compliance by the end of the waiver period, we may need to obtain an additional waiver in order to access the revolving credit facility.

Capital Requirements

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interest rates.

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.

A 100 basis point decline in yield on our investment portfolio holdings as of September 28, 2024 would decrease our future annual interest income by approximately $2.9 million.

We believe that our investment policy, which defines the duration, concentration, and minimum credit quality of the allowable investments, meets our investment objectives.

2 unchanged sentences

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 June 29, 2024.

While we have drawn

from the credit facility in the past, we have no borrowings as of September 28, 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