SILICON LABORATORIES INC. 10-Q

Item 1. Financial Statements Silicon Laboratories Inc. Condensed Consolidated Balance Sheets (In thousands, except per share data) (Unaudited) September 28, 2024 December 30, 2023 Assets Current assets: Cash and cash equivalents $ 303,082 $ 227,504 Short-term investments 66,596 211,720 Accounts receivable, net 48,879 29,295 Inventories 139,489 194,295 Prepaid expenses and other current assets 56,090 75,117 Total current assets 614,136 737,931 Property and equipment, net 135,317 145,890 Goodwill 376,389 376,389 Other intangible assets, net 41,936 59,533 Other assets, net 81,464 123,313 Total assets $ 1,249,242 $ 1,443,056 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 44,648 $ 57,498 Revolving line of credit — 45,000 Deferred revenue and returns liability 8,478 2,117 Other current liabilities 65,179 58,955 Total current liabilities 118,305 163,570 Other non-current liabilities 49,551 70,804 Total liabilities 167,856 234,374 Commitments and contingencies Stockholders’ equity: Preferred stock – $ 0.0001 par value; 10,000 shares authorized; no shares issued — — Common stock – $ 0.0001 par value; 250,000 shares authorized; 32,343 and 31,897 shares issued and outstanding at September 28, 2024 and December 30, 2023, respectively 3 3 Additional paid-in capital 55,567 16,973 Retained earnings 1,025,544 1,192,731 Accumulated other comprehensive income (loss) 272 ( 1,025 ) Total stockholders’ equity 1,081,386 1,208,682 Total liabilities and stockholders’ equity $ 1,249,242 $ 1,443,056 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 3 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Revenues $ 166,395 $ 203,760 $ 418,137 $ 695,413 Cost of revenues 76,082 84,735 196,172 278,753 Gross profit 90,313 119,025 221,965 416,660 Operating expenses: Research and development 83,228 79,042 249,787 254,340 Selling, general and administrative 36,793 27,766 109,041 113,363 Operating expenses 120,021 106,808 358,828 367,703 Operating income (loss) ( 29,708 ) 12,217 ( 136,863 ) 48,957 Other income (expense): Interest income and other, net 3,487 2,938 9,009 15,554 Interest expense ( 278 ) ( 1,359 ) ( 1,050 ) ( 4,611 ) Income (loss) before income taxes ( 26,499 ) 13,796 ( 128,904 ) 59,900 Provision for income taxes 2,005 3,388 38,283 23,479 Equity-method loss — ( 60 ) — ( 1,150 ) Net income (loss) $ ( 28,504 ) $ 10,348 $ ( 167,187 ) $ 35,271 Earnings (loss) per share: Basic $ ( 0.88 ) $ 0.33 $ ( 5.21 ) $ 1.11 Diluted $ ( 0.88 ) $ 0.32 $ ( 5.21 ) $ 1.07 Weighted-average common shares outstanding: Basic 32,309 31,796 32,114 31,789 Diluted 32,309 32,078 32,114 32,919 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 4 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (In thousands) (Unaudited) Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net income (loss) $ ( 28,504 ) $ 10,348 $ ( 167,187 ) $ 35,271 Other comprehensive income, before tax: Net changes to available-for-sale securities: Unrealized gains arising during the period 655 1,553 1,526 5,936 Reclassification for losses included in net income (loss) 11 68 52 4,542 Net changes to cash flow hedges: Unrealized gains (losses) arising during the period ( 5 ) 409 270 ( 135 ) Reclassification for losses (gains) included in net income (loss) — ( 195 ) ( 234 ) ( 38 ) Other comprehensive income, before tax 661 1,835 1,614 10,305 Provision for income taxes 135 344 317 2,216 Other comprehensive income 526 1,491 1,297 8,089 Comprehensive income (loss) $ ( 27,978 ) $ 11,839 $ ( 165,890 ) $ 43,360 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 5 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (In thousands) (Unaudited) Three Months Ended September 28, 2024 Shares Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance as of June 29, 2024 32,289 $ 3 $ 39,232 $ 1,054,048 $ ( 254 ) $ 1,093,029 Net loss — — — ( 28,504 ) — ( 28,504 ) Other comprehensive income — — — — 526 526 Stock issuances, net of shares withheld for taxes 54 — 422 — — 422 Stock-based compensation — — 15,913 — — 15,913 Balance as of September 28, 2024 32,343 $ 3 $ 55,567 $ 1,025,544 $ 272 $ 1,081,386 Three Months Ended September 30, 2023 Shares Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance as of July 1, 2023 31,861 $ 3 $ — $ 1,262,984 $ ( 4,090 ) $ 1,258,897 Net income — — — 10,348 — 10,348 Other comprehensive income — — — — 1,491 1,491 Stock issuances, net of shares withheld for taxes 27 — ( 588 ) — — ( 588 ) Repurchases of common stock ( 109 ) — ( 5,354 ) ( 10,814 ) — ( 16,168 ) Stock-based compensation — — 5,942 — — 5,942 Balance as of September 30, 2023 31,779 $ 3 $ — $ 1,262,518 $ ( 2,599 ) $ 1,259,922 Nine Months Ended September 28, 2024 Shares Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance as of December 30, 2023 31,897 $ 3 $ 16,973 $ 1,192,731 $ ( 1,025 ) $ 1,208,682 Net loss — — — ( 167,187 ) — ( 167,187 ) Other comprehensive income — — — — 1,297 1,297 Stock issuances, net of shares withheld for taxes 446 — ( 6,683 ) — — ( 6,683 ) Stock-based compensation — — 45,277 — — 45,277 Balance as of September 28, 2024 32,343 $ 3 $ 55,567 $ 1,025,544 $ 272 $ 1,081,386 Nine Months Ended September 30, 2023 Shares Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance as of December 31, 2022 31,994 $ 3 $ — $ 1,415,693 $ ( 10,688 ) $ 1,405,008 Net income — — — 35,271 — 35,271 Other comprehensive income — — — — 8,089 8,089 Stock issuances, net of shares withheld for taxes 387 — ( 9,112 ) — — ( 9,112 ) Repurchases of common stock ( 1,522 ) — ( 24,684 ) ( 188,446 ) — ( 213,130 ) Stock-based compensation — — 37,360 — — 37,360 Convertible debt activity 920 — ( 3,564 ) — — ( 3,564 ) Balance as of September 30, 2023 31,779 $ 3 $ — $ 1,262,518 $ ( 2,599 ) $ 1,259,922 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 6 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended September 28, 2024 September 30, 2023 Operating Activities Net income (loss) $ ( 167,187 ) $ 35,271 Adjustments to reconcile net income to net cash used in operating activities: Depreciation of property and equipment 19,302 18,992 Amortization of other intangible assets 17,596 19,162 Amortization of debt issuance costs — 960 Stock-based compensation expense 45,358 37,167 Equity-method loss — 1,150 Deferred income taxes 29,100 ( 5,881 ) Changes in operating assets and liabilities: Accounts receivable ( 19,585 ) ( 30,706 ) Inventories 54,724 ( 66,971 ) Prepaid expenses and other assets 23,091 8,085 Accounts payable ( 13,849 ) ( 37,039 ) Other current liabilities and income taxes ( 5,004 ) ( 39,155 ) Deferred revenue and returns liability 6,361 3,286 Other non-current liabilities ( 13,946 ) 6,794 Net cash used in operating activities ( 24,039 ) ( 48,885 ) Investing Activities Purchases of marketable securities ( 28,363 ) ( 91,493 ) Sales of marketable securities 44,057 365,073 Maturities of marketable securities 131,008 171,766 Purchases of property and equipment ( 7,785 ) ( 18,533 ) Proceeds from sale of equity investment 12,382 — Purchases of other assets — ( 395 ) Net cash provided by investing activities 151,299 426,418 Financing Activities Proceeds from revolving line of credit — 80,000 Payments on debt ( 45,000 ) ( 571,157 ) Repurchases of common stock — ( 217,137 ) Payment of taxes withheld for vested stock awards ( 16,078 ) ( 17,239 ) Proceeds from the issuance of common stock 9,396 8,013 Net cash used in financing activities ( 51,682 ) ( 717,520 ) Increase (decrease) in cash and cash equivalents 75,578 ( 339,987 ) Cash and cash equivalents at beginning of period 227,504 499,915 Cash and cash equivalents at end of period $ 303,082 $ 159,928 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 7 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The information included herein contains all normal recurring accruals and adjustments which, in the opinion of management, are necessary to present fairly Silicon Laboratories Inc.’s (the “Company”) financial position, results of its operations, comprehensive income, stockholders’ equity, and cash flows. The Condensed Consolidated Balance Sheet as of December 30, 2023 was derived from the Company’s audited Consolidated Financial Statements. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three and nine months ended September 28, 2024 are not necessarily indicative of the results to be expected for the full year. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 30, 2023, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 20, 2024. The Company prepares financial statements on a 52- or 53-week fiscal year that ends on the Saturday closest to December 31. Fiscal 2024 will have 52 weeks and fiscal 2023 had 52 weeks. In a 52-week year, each fiscal quarter consists of 13 weeks. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those related to inventories, goodwill, acquired intangible assets, other long-lived assets, revenue recognition, stock-based compensation, and income taxes. Actual results could differ from those estimates, and such differences could be material to the financial statements. The Company periodically reviews the assumptions used in its financial statement estimates. Recent Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures . This ASU requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating decision-maker (“CODM”) and included within the reported measure of a segment’s profit or loss, requires interim disclosures about a reportable segment’s profit or loss and assets that are currently required annually, requires disclosure of the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and contains other disclosure requirements. This authoritative guidance is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. As the requirements of this ASU are disclosure-related, the adoption will not have an impact on the Company’s consolidated financial position and results of operations. The Company is currently evaluating the impact of this update on its segment disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures . This ASU requires that reporting entities disclose specific categories in the effective tax rate reconciliation as well as information about income taxes paid. The authoritative guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The requirements of this ASU are disclosure-related and will not have an impact on the Company’s consolidated financial position and results of operations. The Company is currently evaluating the effect of this new guidance on its income tax disclosures. 8 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 2. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data): Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net income (loss) $ ( 28,504 ) $ 10,348 $ ( 167,187 ) $ 35,271 Shares used in computing basic earnings per share 32,309 31,796 32,114 31,789 Effect of dilutive securities: Convertible debt and stock-based awards — 282 — 1,130 Shares used in computing diluted earnings per share 32,309 32,078 32,114 32,919 Earnings (loss) per share: Basic $ ( 0.88 ) $ 0.33 $ ( 5.21 ) $ 1.11 Diluted $ ( 0.88 ) $ 0.32 $ ( 5.21 ) $ 1.07 Diluted shares for the three and nine months ended September 28, 2024 excluded 0.1 million and 0.2 million shares, respectively, due to the Company’s net loss for the periods. In June 2023, the Company paid $ 535.0 million in cash and issued 0.9 million shares of common stock in connection with the conversions and redemptions of the 2025 Notes. For the three and nine months ended September 30, 2023, approximately 0.0 million and 0.7 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share related to the not yet converted or redeemed 2025 Notes. Securities that were anti-dilutive and were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2023 were insignificant. 3. Fair Value of Financial Instruments The fair values of the Company’s financial instruments are recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below: Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 - Inputs other than Level 1 that are directly or indirectly observable, such as quoted prices for similar assets or liabilities and quoted prices in less active markets. Level 3 - Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data. 9 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 3. Fair Value of Financial Instruments (Continued) The following summarizes the valuation of the Company’s financial instruments (in thousands). The tables do not include either cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value. Fair Value Measurements at September 28, 2024 Using Description Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Total Cash equivalents: Money market funds $ 211,220 $ — $ 211,220 Total cash equivalents $ 211,220 $ — $ 211,220 Short-term investments: Corporate debt securities $ — $ 14,281 $ 14,281 Government debt securities — 52,315 52,315 Total short-term investments $ — $ 66,596 $ 66,596 Total $ 211,220 $ 66,596 $ 277,816 Fair Value Measurements at December 30, 2023 Using Description Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Total Cash equivalents: Money market funds $ 137,195 $ — $ 137,195 Total cash equivalents $ 137,195 $ — $ 137,195 Short-term investments: Corporate debt securities $ — $ 130,047 $ 130,047 Government debt securities — 81,673 81,673 Total short-term investments $ — $ 211,720 $ 211,720 Total $ 137,195 $ 211,720 $ 348,915 Valuation methodology The Company’s cash equivalents and short-term investments that are classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; quoted prices in less active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. The Company’s foreign currency derivative instruments are valued using discounted cash flow models. The assumptions used in preparing the valuation models include foreign exchange rates, forward and spot prices for currencies and market observable data of similar instruments. 10 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 3. Fair Value of Financial Instruments (Continued) The following summarizes the components of available-for-sale investments: Reported As As of September 28, 2024 Amortized Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash Equivalent Marketable Securities Corporate debt securities $ 14,313 $ 19 $ ( 51 ) $ 14,281 $ — $ 14,281 Government debt securities 51,934 385 ( 4 ) 52,315 — 52,315 Money market funds 211,220 — — 211,220 211,220 — Total $ 277,467 $ 404 $ ( 55 ) $ 277,816 $ 211,220 $ 66,596 Reported As As of December 30, 2023 Amortized Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash Equivalent Marketable Securities Corporate debt securities $ 130,858 $ 69 $ ( 880 ) $ 130,047 $ — $ 130,047 Government debt securities 82,091 137 ( 555 ) 81,673 — 81,673 Money market funds 137,195 — — 137,195 137,195 — Total $ 350,144 $ 206 $ ( 1,435 ) $ 348,915 $ 137,195 $ 211,720 Contractual maturities of investments The Company’s available-for-sale investments are reported at fair value, with unrealized gains and losses, net of tax, recorded as a component of accumulated other comprehensive loss in the Condensed Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at September 28, 2024 (in thousands): Cost Fair Value Due in one year or less $ 35,789 $ 35,869 Due after one year through five years 30,458 30,727 $ 66,247 $ 66,596 Unrealized Gains and Losses The available-for-sale investments that were in a continuous unrealized loss position, aggregated by length of time that individual securities have been in a continuous loss position, were as follows (in thousands): Less Than 12 Months 12 Months or Greater Total As of September 28, 2024 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Corporate debt securities $ — $ — $ 4,946 $ ( 51 ) $ 4,946 $ ( 51 ) Government debt securities — — 3,265 ( 4 ) 3,265 ( 4 ) $ — $ — $ 8,211 $ ( 55 ) $ 8,211 $ ( 55 ) 11 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 3. Fair Value of Financial Instruments (Continued) Less Than 12 Months 12 Months or Greater Total As of December 30, 2023 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Corporate debt securities $ 12,449 $ ( 13 ) $ 95,760 $ ( 867 ) $ 108,209 $ ( 880 ) Government debt securities 28,255 ( 115 ) 31,122 ( 440 ) 59,377 ( 555 ) $ 40,704 $ ( 128 ) $ 126,882 $ ( 1,307 ) $ 167,586 $ ( 1,435 ) The gross unrealized losses as of September 28, 2024 and December 30, 2023 were due primarily to changes in market interest rates. At September 28, 2024 and December 30, 2023, there were no material unrealized gains associated with the Company’s available-for-sale investments. The Company records an allowance for credit loss when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, the Company reviews factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. As of September 28, 2024, there were no material declines in the market value of available-for-sale investments due to credit-related factors. Fair values of other financial instruments The Company’s other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fair values due to their short maturities. 4. Derivative Financial Instruments The Company uses derivative financial instruments to manage certain exposures to the variability of foreign currency exchange rates. The Company’s objective is to offset increases and decreases in expenses resulting from these exposures with gains and losses on the derivative contracts, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative or trading purposes. The Company recognizes derivatives, on a gross basis, in the Condensed Consolidated Balance Sheet at fair value. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Condensed Consolidated Statement of Cash Flows. Cash Flow Hedges Foreign Currency Forward Contracts The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on operating expenses denominated in currencies other than the U.S. dollar. Changes in the fair value of the contracts are recorded in accumulated other comprehensive income (loss) in the Condensed Consolidated Balance Sheet and subsequently reclassified into earnings in the period during which the hedged transaction is recognized. The reclassified amount is reported in the same financial statement line item as the hedged item. If the foreign currency forward contracts are terminated or can no longer qualify as hedging instruments prior to maturity, the fair value of the contracts recorded in accumulated other comprehensive income (loss) may be recognized in the Condensed Consolidated Statement of Operations based on an assessment of the contracts at the time of termination. As of September 28, 2024, the contracts had maturities of one to two months and an aggregate notional value of $ 7.2 million. Gains and losses expected to be reclassified into earnings in the next twelve months were not material. The fair value of the contracts, contract gains or losses recognized in other comprehensive income and amounts reclassified from accumulated other comprehensive income (loss) into earnings were not material for any of the periods presented. 12 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 5. Supplemental Information The following table shows the details of selected Condensed Consolidated Balance Sheet items (in thousands): Inventories September 28, 2024 December 30, 2023 Work in progress $ 116,600 $ 173,802 Finished goods 22,889 20,493 $ 139,489 $ 194,295 Lease income The Company leases a portion of its headquarter facilities to other tenants. Lease income from operating leases was $ 2.2 million and $ 2.3 million during the nine months ended September 28, 2024 and September 30, 2023, respectively. 6. Debt Credit Facility The Company and certain of its domestic subsidiaries (the “Guarantors”) have a $ 400 million revolving credit facility, as amended on June 30, 2023, with a maturity date of June 30, 2028. The credit facility includes a $ 25 million letter of credit sublimit and a $ 10 million swingline loan sublimit. The Company also has an option to increase the size of the borrowing capacity by up to the greater of an aggregate of $ 250 million and 100 % of EBITDA of the last four fiscal quarters, plus an amount that would not cause a secured net leverage ratio (funded debt secured by assets/EBITDA) to exceed 3.50 to 1.00, subject to certain conditions. The credit facility, other than swingline loans, will bear interest at the Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin or, at the option of the Company, a base rate (defined as the highest of the Wells Fargo prime rate, the Federal Funds rate plus 0.50 % and the Adjusted Term SOFR plus 1.00 %) plus an applicable margin. Swingline loans accrue interest at the base rate plus the applicable margin for base rate loans. The applicable margins for the Adjusted Term SOFR loans range from 1.00 % to 1.75 % and for base rate loans range from 0.00 % to 0.75 %, depending in each case, on the leverage ratio as defined in the credit facility. The credit facility contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain a consolidated net leverage ratio (funded indebtedness less cash and cash equivalents up to $ 750 million and divided by EBITDA) of no more than 4.25 to 1, and a minimum interest coverage ratio (EBITDA/interest payments) of no less than 2.50 to 1. The Company was granted a waiver of compliance for the minimum interest coverage ratio through March 29, 2025. Based on the waiver, as of September 28, 2024, the Company was in compliance with all covenants of the credit facility. The Company’s obligations under the credit facility are guaranteed by the Guarantors and are secured by a security interest in substantially all assets of the Company and the Guarantors. As of September 28, 2024, no amounts were outstanding on the credit facility. 13 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 7. Commitments and Contingencies Litigation The Company is involved in various legal proceedings that have arisen in the normal course of business. While the ultimate results cannot be predicted with certainty, the Company does not expect them to have a material adverse effect on its Condensed Consolidated Financial Statements. 8. Revenues The Company groups its products as Industrial & Commercial or Home & Life based on the target markets they address. The following represents revenue by product category (in thousands): Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Industrial & Commercial $ 96,496 $ 120,957 $ 249,840 $ 436,973 Home & Life 69,899 82,803 168,297 258,440 $ 166,395 $ 203,760 $ 418,137 $ 695,413 A portion of the Company’s sales are made to distributors under agreements allowing certain rights of return and/or price protection related to the final selling price to the end customers. These factors impact the timing and uncertainty of revenues and cash flows. During the three and nine months ended September 28, 2024 and September 30, 2023, the impact of revenue related to performance obligations that were satisfied in previous reporting periods was insignificant. The following disaggregates the Company’s revenue by sales channel (in thousands): Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Distributors $ 119,212 $ 164,444 $ 289,502 $ 556,963 Direct customers 47,183 39,316 128,635 138,450 $ 166,395 $ 203,760 $ 418,137 $ 695,413 9. Stock-Based Compensation Stock-based compensation costs are based on the fair values on the date of grant for stock awards and stock options and on the date of enrollment for the employee stock purchase plans. The fair values of stock awards (such as restricted stock units (“RSUs”), performance stock units (“PSUs”) and restricted stock awards (“RSAs”)) are estimated based on their intrinsic values. The fair values of market stock awards (“MSUs”) are estimated using a Monte Carlo simulation. The fair values of stock options and employee stock purchase plans are estimated using the Black-Scholes option-pricing model. 14 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 9. Stock-Based Compensation (Continued) The following table presents details of stock-based compensation costs recognized in the Condensed Consolidated Statements of Operations (in thousands): Three Months Ended Nine Months Ended September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Cost of revenues $ 369 $ 192 $ 1,193 $ 774 Research and development 10,255 8,598 30,194 26,903 Selling, general and administrative 5,279 ( 3,000 ) 13,971 9,490 15,903 5,790 45,358 37,167 Income tax benefit 2,252 505 6,054 4,446 Total $ 13,651 $ 5,285 $ 39,304 $ 32,721 For the three months ended September 30, 2023, the Company recognized an expense reversal of $ 9.5 million to reflect a reduction in the estimated levels of achievement related to unvested performance stock units. The Company had approximately $ 110.0 million of total unrecognized compensation cost related to equity grants as of September 28, 2024 that is expected to be recognized over a weighted-average period of approximately 2.2 years. 10. Income Taxes Provision for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits, global intangible low-taxed income, Subpart F income inclusions, and other permanent differences. Income tax expense was $ 2.0 million and $ 3.4 million for the three months ended September 28, 2024 and September 30, 2023, resulting in effective tax rates of ( 7.6 )% and 24.7 %, respectively. Income tax expense was $ 38.3 million and $ 23.5 million for the nine months ended September 28, 2024 and September 30, 2023, resulting in effective tax rates of ( 29.7 )% and 40.0 %, respectively. 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 the Company’s U.S. and Singapore deferred tax assets during the three months ended June 29, 2024. Because of the valuation allowance, the Company is unable to recognize the full tax benefit of the pre-tax losses incurred in those jurisdictions in the current year. For the three and nine months ended September 28, 2024, the Company’s provision for income taxes includes $ 3.8 million and $ 48.1 million of non-cash tax expense related to the valuation allowance. The Company establishes a valuation allowance when it is more likely than not that some portion or all of a deferred tax asset will not be realized. During the three months ended June 29, 2024, the Company determined 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. The Company intends to maintain the valuation allowance until its ability to forecast sufficient future sources of taxable income is reestablished. Uncertain Tax Positions As of September 28, 2024, the Company had gross unrecognized tax benefits, inclusive of interest, of $ 6.3 million, of which $ 5.3 million would affect the effective tax rate if recognized. During the nine months ended September 28, 2024, the Company did not release any unrecognized tax benefits. Tax years 2015 through 2024 remain open to examination by the major taxing jurisdictions in which the Company operates. The Company’s 2021 and 2022 tax years are currently under examination in India. Although the outcome of tax audits is always uncertain, the Company believes that the results of the examination will not materially impact its financial position or results of operations. The Company is not currently under audit in any other major taxing jurisdiction. 15 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 10. Income Taxes (Continued) The Company's gross unrecognized tax benefits will decrease by approximately $ 1.8 million, inclusive of interest, in the next 12 months due to the lapse of the statute of limitations. 11. Restructuring Activities During the fourth quarter of 2023, the Company implemented a workforce reduction of approximately 10 % of its employees to reduce costs and align its business in response to market conditions. The following table summarizes the activity of the restructuring liability during the periods presented (in millions): Nine Months Ended September 28, 2024 Balance, beginning of period $ 4.4 Charges 0.9 Payments ( 5.3 ) Balance, end of period $ — During the three months ended September 28, 2024, restructuring charges were not material, and during the nine months ended September 28, 2024, restructuring charges of $ 0.9 million were recognized in operating expenses in the Condensed Consolidated Statements of Operations. The cash payments for this activity were completed in the third quarter of 2024. 16 Table of Contents