SEMTECH CORP [SMTC] Filings

10-Q 1 smtc-20240728.htm 10-Q smtc-20240728

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________

FORM 10-Q

____________________________________

(Mark One)


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended July 28, 2024


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 001-06395

____________________________________

SEMTECH CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________



Delaware						95-2119684
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

200 Flynn Road, Camarillo, California, 93012-8790

(Address of principal executive offices, Zip Code)

Registrant’s telephone number, including area code: (805) 498-2111

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock par value $0.01 per share

SMTC

The Nasdaq Global Select Market

____________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

Number of shares of common stock, $0.01 par value per share, outstanding at August 23, 2024: 75,227,342

SEMTECH CORPORATION

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED JULY 28, 2024


PART I - FINANCIAL INFORMATION			3

ITEM 1. Financial Statements			4

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			39

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			53

ITEM 4. Controls and Procedures			54

PART II – OTHER INFORMATION			55

ITEM 1. Legal Proceedings			55

ITEM 1A. Risk Factors			55

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			55

ITEM 3. Defaults Upon Senior Securities			55

ITEM 4. Mine Safety Disclosures			55

ITEM 5. Other Information			55

ITEM 6. Exhibits			56

Unless the context otherwise requires, the use of the terms "Semtech," the "Company," "we," "us" and "our" in this Quarterly Report on Form 10-Q refers to Semtech Corporation and, as applicable, its consolidated subsidiaries. This Quarterly Report on Form 10-Q may contain references to the Company’s trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other company.

Special Note Regarding Forward-Looking and Cautionary Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Forward-looking statements are statements other than historical information or statements of current condition and relate to matters such as future financial performance, future operational performance, the anticipated impact of specific items on future earnings, and our plans, objectives and expectations. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "estimate," "should," "could," "designed to," "projections," or "business outlook," or other similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and events to differ materially from those projected. Potential factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: the Company's ability to comply with, or pursue business strategies due to, the covenants under the agreements governing its indebtedness; the Company's ability to remediate material weakness in its internal control over financial reporting, discovery of additional material weaknesses, and its inability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting; the Company's ability to forecast and achieve anticipated net sales and earnings estimates in light of periodic economic uncertainty; risks of not achieving all or any of the anticipated benefits of our acquisition of Sierra Wireless, Inc. or the risk that the anticipated benefits may not be fully realized or take longer to realize than expected; the uncertainty surrounding the impact and duration of supply chain constraints and any associated disruptions; export restrictions and laws affecting the Company's trade and tariffs or the occurrence of trade wars; worldwide economic and political disruptions, including as a result of inflation and current geopolitical conflicts; tightening credit conditions related to the United States; competitive changes in the marketplace including, but not limited to, the pace of growth or adoption rates of applicable products or technologies; downturns in the business cycle; decreasing average selling prices of the Company’s products; the Company’s reliance on a limited number of suppliers and subcontractors for components and materials; changes in projected or anticipated end-user markets; future responses to and effects of public health crises; and those other factors set forth under "Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2024 filed with the Securities and Exchange Commission (the "SEC") on March 28, 2024, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with SEC. In light of the significant risks and uncertainties inherent in the forward-looking information included herein that may cause actual performance and results to differ materially from those predicted, any such forward-looking information should not be regarded as representations or guarantees by the Company of future performance or results, or that its objectives or plans will be achieved, or that any of its operating expectations or financial forecasts will be realized. Reported results should not be considered an indication of future performance. Investors are cautioned not to place undue reliance on any forward-looking information contained herein, which reflect management’s analysis only as of the date hereof. Except as required by law, the Company assumes no obligation to publicly release the results of any update or revision to any forward-looking statement that may be made to reflect new information, events or circumstances after the date hereof or to reflect the occurrence of unanticipated or future events, or otherwise.

In addition to regarding forward-looking statements with caution, you should consider that the preparation of the consolidated financial statements requires us to draw conclusions and make interpretations, judgments, assumptions and estimates with respect to certain factual, legal, and accounting matters. Our consolidated financial statements might have been materially impacted if we had reached different conclusions or made different interpretations, judgments, assumptions or estimates.

PART I - FINANCIAL INFORMATION

ITEM 1.Financial Statements

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended				Six Months Ended
	July 28, 2024		July 30, 2023		July 28, 2024		July 30, 2023
Net sales	$	215,355	$	238,372	$	421,460	$	474,911
Cost of sales	107,612		127,071		211,844		249,809
Amortization of acquired technology	2,279		10,573		4,560		21,428

Total cost of sales	109,891		137,644		216,404		271,237
Gross profit	105,464		100,728		205,056		203,674
Operating expenses, net:
Selling, general and administrative	55,789		59,579		108,058		117,359
Product development and engineering	40,084		47,433		81,688		98,034
Intangible amortization	282		4,871		589		9,753
Restructuring	1,541		9,399		3,810		10,962


Goodwill impairment	—		279,555		—		279,555
Total operating expenses, net	97,696		400,837		194,145		515,663
Operating income (loss)	7,768		(300,109)		10,911		(311,989)
Interest expense	(28,578)		(24,171)		(51,807)		(44,681)
Interest income	433		674		975		1,743
Loss on extinguishment of debt	(144,688)		—		(144,688)		—
Non-operating expense, net	(1,015)		(1,566)		(615)		(2,039)
Investment impairments and credit loss reserves, net	—		(227)		(1,109)		(260)
Loss before taxes and equity method (loss) income	(166,080)		(325,399)		(186,333)		(357,226)
Provision for income taxes	4,215		56,592		7,171		54,175
Net loss before equity method (loss) income	(170,295)		(381,991)		(193,504)		(411,401)
Equity method (loss) income	—		(12)		50		(19)
Net loss	(170,295)		(382,003)		(193,454)		(411,420)
Net loss attributable to noncontrolling interest	—		(1)		—		(3)
Net loss attributable to common stockholders	$	(170,295)	$	(382,002)	$	(193,454)	$	(411,417)
Loss per share:
Basic	$	(2.61)	$	(5.97)	$	(2.98)	$	(6.43)
Diluted	$	(2.61)	$	(5.97)	$	(2.98)	$	(6.43)
Weighted-average number of shares used in computing loss per share:
Basic	65,281		64,005		64,895		63,964
Diluted	65,281		64,005		64,895		63,964

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)


	Three Months Ended				Six Months Ended
	July 28, 2024		July 30, 2023		July 28, 2024		July 30, 2023
Net loss	$	(170,295)	$	(382,003)	$	(193,454)	$	(411,420)
Other comprehensive (loss) income, net:
Unrealized (loss) gain on foreign currency cash flow hedges, net	(51)		96		(174)		(27)
Reclassifications of realized gain (loss) on foreign currency cash flow hedges, net, to net loss	13		(164)		(9)		(276)
Unrealized (loss) gain on interest rate cash flow hedges, net	(6,959)		13,769		4,641		14,187
Reclassifications of realized gain on interest rate cash flow hedges, net, to net loss	(2,196)		(1,836)		(4,393)		(3,592)


Cumulative translation adjustment	1,270		(6,697)		232		(7,698)

Change in defined benefit plans, net	(17)		(52)		(34)		(102)

Other comprehensive (loss) income, net	(7,940)		5,116		263		2,492
Comprehensive loss	(178,235)		(376,887)		(193,191)		(408,928)
Comprehensive loss attributable to noncontrolling interest	—		(1)		—		(3)
Comprehensive loss attributable to common stockholders	$	(178,235)	$	(376,886)	$	(193,191)	$	(408,925)

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)


	July 28, 2024		January 28, 2024
Assets
Current assets:
Cash and cash equivalents	$	115,928	$	128,585
Accounts receivable, less allowances of $5,580 and $4,161, respectively	152,976		134,322
Inventories	156,011		144,992
Prepaid taxes	15,375		11,969

Other current assets	101,453		114,329
Total current assets	541,743		534,197
Non-current assets:
Property, plant and equipment, net of accumulated depreciation of $300,081 and $283,725, respectively	139,525		153,618
Deferred tax assets	18,017		18,014
Goodwill	541,104		541,227
Other intangible assets, net	35,354		35,566
Other assets	92,257		91,113
TOTAL ASSETS	$	1,368,000	$	1,373,735
Liabilities and Equity (Deficit)
Current liabilities:
Accounts payable	$	75,760	$	45,051
Accrued liabilities	148,913		172,105


Total current liabilities	224,673		217,156
Non-current liabilities:
Deferred tax liabilities	—		829
Long-term debt	1,192,865		1,371,039
Other long-term liabilities	91,899		91,961

Commitments and contingencies (Note 12)

Stockholders’ equity (deficit) :
Common stock, $0.01 par value, 250,000,000 shares authorized, 88,514,575 issued and 75,118,173 outstanding and 78,136,144 issued and 64,415,861 outstanding, respectively	885		785
Treasury stock, at cost, 13,396,402 shares and 13,720,283 shares, respectively	(548,619)		(556,888)
Additional paid-in capital	836,271		485,452
Retained deficit	(427,244)		(233,790)
Accumulated other comprehensive loss, net	(2,730)		(2,993)
Total stockholders’ deficit	(141,437)		(307,434)

Noncontrolling interest	—		184
Total deficit	(141,437)		(307,250)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	1,368,000	$	1,373,735

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(unaudited)


	Three Months Ended July 28, 2024
	Common Stock									Accumulated Other Comprehensive Income (Loss), Net
	Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings (Deficit)				Stockholders’ Equity (Deficit)		Noncontrolling Interest		Total Equity (Deficit)
Balance at April 28, 2024	64,594,260	$	785	$	(552,651)	$	490,507	$	(256,949)	$	5,210	$	(313,098)	$	—	$	(313,098)

Net loss	—	—		—		—		(170,295)		—		(170,295)		—		(170,295)
Other comprehensive loss	—	—		—		—		—		(7,940)		(7,940)		—		(7,940)



Issuance of common stock upon exchange of 2028 Notes (as defined in Note 9)	10,378,431	100		—		333,155		—		—		333,255		—		333,255
Share-based compensation	—	—		—		17,993		—		—		17,993		—		17,993

Treasury stock reissued to settle share-based awards	145,482	—		4,032		(5,384)		—		—		(1,352)		—		(1,352)
Balance at July 28, 2024	75,118,173	$	885	$	(548,619)	$	836,271	$	(427,244)	$	(2,730)	$	(141,437)	$	—	$	(141,437)


	Six Months Ended July 28, 2024
	Common Stock									Accumulated Other Comprehensive Income (Loss), Net
	Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings (Deficit)				Stockholders’ Equity (Deficit)		Noncontrolling Interest		Total Equity (Deficit)
Balance at January 28, 2024	64,415,861	$	785	$	(556,888)	$	485,452	$	(233,790)	$	(2,993)	$	(307,434)	$	184	$	(307,250)

Net loss	—	—		—		—		(193,454)		—		(193,454)		—		(193,454)
Other comprehensive income	—	—		—		—		—		263		263		—		263
Distribution to outside interest upon liquidation of a consolidated subsidiary	—	—		—		—		—		—		—		(184)		(184)


Issuance of common stock upon exchange of 2028 Notes (as defined in Note 9)	10,378,431	100		—		333,155		—		—		333,255		—		333,255
Share-based compensation	—	—		—		29,475		—		—		29,475		—		29,475

Treasury stock reissued to settle share-based awards	323,881	—		8,269		(11,811)		—		—		(3,542)		—		(3,542)
Balance at July 28, 2024	75,118,173	$	885	$	(548,619)	$	836,271	$	(427,244)	$	(2,730)	$	(141,437)	$	—	$	(141,437)

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

(in thousands, except share data)

(unaudited)


	Three Months Ended July 30, 2023
	Common Stock									Accumulated Other Comprehensive Income, Net
	Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings (Deficit)				Stockholders’ Equity (Deficit)		Noncontrolling Interest		Total Equity (Deficit)
Balance at April 30, 2023	63,957,748	$	785	$	(575,317)	$	477,999	$	828,825	$	736	$	733,028	$	181	$	733,209
Net loss	—	—		—		—		(382,002)		—		(382,002)		(1)		(382,003)
Other comprehensive income	—	—		—		—		—		5,116		5,116		—		5,116



Share-based compensation	—	—		—		11,503		—		—		11,503		—		11,503

Treasury stock reissued to settle share-based awards	72,464	—		2,327		(3,137)		—		—		(810)		—		(810)
Balance at July 30, 2023	64,030,212	$	785	$	(572,990)	$	486,365	$	446,823	$	5,852	$	366,835	$	180	$	367,015


	Six Months Ended July 30, 2023
	Common Stock									Accumulated Other Comprehensive Income, Net
	Number of Shares Outstanding	Amount		Treasury Stock, at Cost		Additional Paid-in Capital		Retained Earnings (Deficit)				Stockholders’ Equity (Deficit)		Noncontrolling Interest		Total Equity (Deficit)
Balance at January 29, 2023	63,870,581	$	785	$	(577,907)	$	471,374	$	858,240	$	3,360	$	755,852	$	183	$	756,035

Net loss	—	—		—		—		(411,417)		—		(411,417)		(3)		(411,420)
Other comprehensive income	—	—		—		—		—		2,492		2,492		—		2,492



Share-based compensation	—	—		—		22,323		—		—		22,323		—		22,323

Treasury stock reissued to settle share-based awards	159,631	—		4,917		(7,332)		—		—		(2,415)		—		(2,415)
Balance at July 30, 2023	64,030,212	$	785	$	(572,990)	$	486,365	$	446,823	$	5,852	$	366,835	$	180	$	367,015

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended
	July 28, 2024		July 30, 2023
Cash flows from operating activities:
Net loss	$	(193,454)	$	(411,420)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	23,071		46,565
Amortization of right-of-use assets	3,189		3,282

Investment impairments and credit loss reserves, net	1,109		260

Goodwill impairment	—		279,555

Accretion of deferred financing costs	4,758		3,103
Write-off of deferred financing costs	5,497		771
Loss on extinguishment of debt	143,467		—
Deferred income taxes	(934)		50,542
Share-based compensation	32,372		21,803
Loss (gain) on disposition of business operations and assets	91		(17)
Equity method (income) loss	(50)		19
Gain from sale of investments	(277)		—


Corporate-owned life insurance, net	1,670		3,212
Amortization of inventory step-up	—		3,314
Changes in assets and liabilities:
Accounts receivable, net	(18,701)		2,725
Inventories	(11,031)		22,094
Other assets	3,705		(11,179)
Accounts payable	31,084		(37,730)
Accrued liabilities	(26,660)		(71,211)

Other liabilities	(3,990)		(7,680)
Net cash used in operating activities	(5,084)		(101,992)
Cash flows from investing activities:

Proceeds from sales of property, plant and equipment	73		42
Purchase of property, plant and equipment	(4,745)		(20,897)
Proceeds from sale of investments	2,650		—
Purchase of investments	(434)		(930)
Purchase of intangibles	(5,018)		(292)


Proceeds from corporate-owned life insurance	4,802		2,500



Net cash used in investing activities	(2,672)		(19,577)
Cash flows from financing activities:
Proceeds from revolving line of credit	—		60,000


Payments of term loans	—		(11,187)




Deferred financing costs	(824)		(11,671)

Payments for employee share-based compensation payroll taxes	(4,185)		(2,415)
Proceeds from exercise of stock options	643		—

Distributions to noncontrolling interest	(184)		—
Net cash (used in) provided by financing activities	(4,550)		34,727
Effect of foreign exchange rate changes on cash and cash equivalents	(351)		(756)
Net decrease in cash and cash equivalents	(12,657)		(87,598)
Cash and cash equivalents at beginning of period	128,585		235,510
Cash and cash equivalents at end of period	$	115,928	$	147,912
Supplemental disclosure of cash flow information:
Interest paid	$	42,352	$	40,912
Income taxes paid	$	3,809	$	15,612
Non-cash investing and financing activities:

Accounts payable related to capital expenditures	$	269	$	1,640
Accrued deferred financing costs	$	383	$	349
Debt extinguished in exchange for common stock	$	188,050	$	—

The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

SEMTECH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Organization and Basis of Presentation

Nature of Business

Semtech Corporation (together with its consolidated subsidiaries, the "Company" or "Semtech") is a high-performance semiconductor, Internet of Things ("IoT") systems and cloud connectivity service provider. The end customers for the Company’s silicon solutions are primarily original equipment manufacturers that produce and sell technology solutions. The Company’s IoT module, router, gateway and managed connectivity solutions ship to IoT device makers and enterprises to provide IoT connectivity to end devices.

The Company designs, develops, manufactures and markets a wide range of products for commercial applications, the majority of which are sold into the infrastructure, high-end consumer and industrial end markets.

Basis of Presentation

The Company reports results on the basis of 52 and 53-week periods and ends its fiscal year on the last Sunday in January. The other quarters generally end on the last Sunday of April, July and October. All quarters consist of 13 weeks except for one 14-week period in the fourth quarter of 53-week years. The second quarter of fiscal years 2025 and 2024 each consisted of 13 weeks.

Principles of Consolidation

The accompanying interim unaudited condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2024 ("Annual Report"). The Company’s interim unaudited condensed consolidated statements of operations are referred to herein as the "Statements of Operations," the Company’s interim unaudited condensed consolidated balance sheets are referred to herein as the "Balance Sheets," and the Company's interim unaudited condensed consolidated statements of cash flows are referred to herein as the "Statements of Cash Flows." In the opinion of the Company, these interim unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, the financial position and results of operations of the Company for the interim periods presented. All intercompany balances have been eliminated. Because the interim unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for a complete set of consolidated financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report. The results reported in these interim unaudited condensed consolidated financial statements should not be regarded as indicative of results that may be expected for any subsequent period or for the entire year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

During the third quarter of fiscal year 2024, the Company reclassified restructuring costs that were included in "Selling, general and administrative" and "Product development and engineering" within "Total operating expenses, net" in the Statements of Operations to be separately presented in "Restructuring" within "Total operating expenses, net" in the Statements of Operations. This was applied retrospectively and resulted in the reclassification of $5.4 million and $5.8 million of restructuring costs for the three and six months ended July 30, 2023, respectively, from "Selling, general and administrative" and $4.0 million and $5.2 million of restructuring costs for the three and six months ended July 30, 2023, respectively, from "Product development and engineering" to "Restructuring" in the Statements of Operations. This reclassification did not impact the Company's gross profit, operating income, net income or earnings per share for any historical periods and also did not impact the Balance Sheets or Statements of Cash Flows.

Liquidity

The accompanying interim unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Management evaluated whether there are any conditions and events, considered in the aggregate,

that raise substantial doubt about the Company’s ability to continue as a going concern over the next twelve months from the issuance of the accompanying interim unaudited condensed consolidated financial statements.

As of July 28, 2024, the Company was in compliance with the financial covenants in the Credit Agreement (as defined in Note 9, Long-Term Debt).

Based on the Company’s current amount of debt outstanding and financial projections, management believes the Company will maintain compliance with its financial covenants in the Credit Agreement (as defined in Note 9, Long-Term Debt), and that the Company’s existing cash, projected operating cash flows and available borrowing capacity under its Revolving Credit Facility (as defined in Note 9, Long-Term Debt) are adequate to meet its operating needs, liabilities and commitments over the next twelve months from the issuance of the accompanying interim unaudited condensed consolidated financial statements.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to require public business entities to disclose sufficient information to enable users of financial statements to understand the nature and magnitude of factors contributing to the difference between the effective tax rate and the statutory tax rate. The amendments in this update provide that a business entity disclose (1) a tabular income tax rate reconciliation, using both percentages and amounts, (2) separate disclosure of any individual reconciling items that are equal to or greater than 5% of the amount computed by multiplying the income (loss) from continuing operations before income taxes by the applicable statutory income tax rate, and disaggregation of certain items that are significant and (3) amount of income taxes paid (net of refunds received) disaggregated by federal, state and foreign jurisdictions, including separate disclosure of any individual jurisdictions representing greater than 5% of total income taxes paid. The amendments are effective for the Company for fiscal years beginning after December 15, 2024. Early adoption is permitted and entities may apply the amendments prospectively or may elect retrospective application. The Company is currently evaluating the impact of this guidance on its disclosures within the consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify the circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The amendments require retrospective application to all periods presented. The amendments are effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its disclosures within the consolidated financial statements.

Note 2: Acquisition

Acquisition of Sierra Wireless, Inc.

On January 12, 2023 (the "Acquisition Date"), the Company completed the acquisition of all of the issued and outstanding common shares of Sierra Wireless, Inc. ("Sierra Wireless") in an all-cash transaction representing a total purchase consideration of approximately $1.3 billion (the "Sierra Wireless Acquisition"). The results of operations of Sierra Wireless have been included in the Statements of Operations since the Acquisition Date.

The transaction was accounted for as a business combination in accordance with Accounting Standards Codification ("ASC") 805, "Business Combinations." The purchase price allocation for the Sierra Wireless Acquisition was completed during the third quarter of fiscal year 2024. The fair values of acquired intangibles were determined based on estimates and assumptions that were deemed reasonable by the Company. In the fourth quarter of fiscal year 2023, a preliminary goodwill balance of $931.4 million was recognized for the excess of the consideration transferred over the net assets acquired and represented the expected revenue and cost synergies of the combined company and assembled workforce. During the first three quarters of fiscal year 2024, the Company finalized measurement period adjustments related to identifiable intangible assets, inventories, property, plant, and equipment, income and non-income based taxes, legal matters, and other assets and liabilities, which have been recorded to reflect facts and circumstances that existed as of the Acquisition Date. These adjustments increased the goodwill balance by $23.9 million to $955.3 million. In fiscal year 2024, the Company also finalized its determination of the reporting units related to the Sierra Wireless Acquisition and completed an allocation of the goodwill balance to these reporting units.

The following table presents the fair values of assets and liabilities assumed on the Acquisition Date based on valuations and management's estimates:


(in thousands)	Amounts recognized as of Acquisition Date (as initially reported)		Measurement period adjustment		Amounts recognized as of Acquisition Date (as adjusted)
Total purchase price consideration, net of cash acquired $68,794	$	1,240,757			$	1,240,757
Assets:
Accounts receivable, net	92,633		—		92,633
Inventories	96,339		(1,899)		94,440
Other current assets	72,724		5,003		77,727
Property, plant and equipment	29,086		(2,628)		26,458
Intangible assets	214,780		—		214,780
Prepaid taxes	3,001		—		3,001
Deferred tax assets	22,595		285		22,880
Other assets	14,878		—		14,878
Liabilities:
Accounts payable	50,413		210		50,623
Accrued liabilities	148,654		26,232		174,886
Deferred tax liabilities	4,824		350		5,174
Other long-term liabilities	32,785		(2,106)		30,679
Net assets acquired, excluding goodwill	$	309,360	$	(23,925)	$	285,435
Goodwill	$	931,397	$	23,925	$	955,322

Note 3: Loss per Share

The computation of basic and diluted loss per share was as follows:


	Three Months Ended				Six Months Ended
(in thousands, except per share data)	July 28, 2024		July 30, 2023		July 28, 2024		July 30, 2023
Net loss attributable to common stockholders	$	(170,295)	$	(382,002)	$	(193,454)	$	(411,417)

Weighted-average shares outstanding–basic	65,281		64,005		64,895		63,964


Weighted-average shares outstanding–diluted	65,281		64,005		64,895		63,964

Loss per share:
Basic	$	(2.61)	$	(5.97)	$	(2.98)	$	(6.43)
Diluted	$	(2.61)	$	(5.97)	$	(2.98)	$	(6.43)

Anti-dilutive shares not included in the above calculations:
Share-based compensation	911		2,593		888		2,462

Warrants	8,573		8,573		8,573		8,573
Total anti-dilutive shares	9,484		11,166		9,461		11,035

Basic earnings or loss per share is computed by dividing income or loss available to common stockholders by the weighted-average number of shares of common stock outstanding during the reporting period. Diluted earnings or loss per share incorporates the incremental shares issuable, calculated using the treasury stock method, upon the assumed exercise of non-qualified stock options and the vesting of restricted stock units, market-condition restricted stock units and financial metric-based restricted stock units if certain conditions have been met, but excludes such incremental shares that would have an anti-dilutive effect. Due to the Company's net loss for the three and six months ended July 28, 2024, all shares underlying stock options and restricted stock units are considered anti-dilutive.

Any dilutive effect of the Warrants (as defined in Note 9, Long-Term Debt) is calculated using the treasury-stock method. During the three and six months ended July 28, 2024, the Warrants were excluded from diluted shares outstanding because the exercise price exceeded the average market price of the Company's common stock for the reporting periods and due to net loss in such reporting periods.

Note 4: Share-Based Compensation

Financial Statement Effects and Presentation

Pre-tax share-based compensation was included in the Statements of Operations as follows:


	Three Months Ended				Six Months Ended
(in thousands)	July 28, 2024		July 30, 2023		July 28, 2024		July 30, 2023
Cost of sales	$	714	$	525	$	1,396	$	888
Selling, general and administrative	12,982		9,409		24,373		13,911
Product development and engineering	3,442		3,465		6,603		7,004
Total share-based compensation	$	17,138	$	13,399	$	32,372	$	21,803

Restricted Stock Units, Employees

The Company grants restricted stock units to certain employees of which a portion are expected to be settled with shares of the Company's common stock and a portion are expected to be settled in cash. The restricted stock units that are to be settled with shares are accounted for as equity. The grant date for these awards is equal to the measurement date and they are valued as of the measurement date, based on the fair value of the Company's common stock at the grant date, and recognized as share-based compensation expense over the requisite vesting period (typically between 1 and 4 years). The restricted stock units that are to be settled in cash are accounted for as liabilities and the value of the awards is re-measured at the end of each reporting period until settlement at the end of the requisite vesting period (typically 3 years). In the six months ended July 28, 2024, the Company granted to certain employees 893,114 restricted stock units that settle in shares with a weighted-average grant date fair value of $27.64.

Restricted Stock Units, Non-Employee Directors

The Company maintains a compensation program pursuant to which restricted stock units are granted to the Company’s directors who are not employed by the Company or any of its subsidiaries. Under the Company's director compensation program, a portion of the restricted stock units granted under the program would be settled in cash and a portion would be settled in shares of the Company's common stock. Restricted stock units awarded under the program are generally scheduled to vest on the earlier of (i) one year after the grant date or (ii) the day immediately preceding the first annual meeting of the Company's stockholders following the grant. The portion of a restricted stock unit award under the program that is to be settled in cash will, subject to vesting, be settled when the director who received the award separates from service. The portion of a restricted stock unit award under the program that is to be settled in shares of stock will, subject to vesting, be settled promptly following vesting. In the six months ended July 28, 2024, the Company granted to certain non-employee directors 25,713 restricted stock units that settle in cash and 25,713 restricted stock units that settle in shares with a weighted-average grant date fair value of $31.50.

The restricted stock units that are to be settled in cash are accounted for as liabilities. These awards are not typically settled until a non-employee director’s separation from service. The value of both the unvested and vested but unsettled awards are re-measured at the end of each reporting period until settlement. In the six months ended July 28, 2024, $1.4 million was paid to settle the vesting of 44,018 cash-settled restricted stock unit awards upon the separation of service of a former director. As of July 28, 2024, the total number of vested, but unsettled, shares subject to cash-settled restricted stock unit awards was 208,392 and the liability associated with these awards was $5.9 million, of which $2.2 million was included in "Accrued liabilities" in the Balance Sheets relating to two previous non-employee directors currently serving short-term non-employee consultancies for the Company. The remaining $3.7 million was included in "Other long-term liabilities" in the Balance Sheets as of July 28, 2024. As of January 28, 2024, the total number of vested, but unsettled, shares subject to cash-settled restricted stock unit awards was 230,231 and the liability associated with these awards was $4.4 million, of which $1.8 million was included in "Accrued liabilities" in the Balance Sheets relating to two previous non-employee directors currently serving short-term non-employee consultancies for the Company. The remaining $2.6 million was included in "Other long-term liabilities" in the Balance Sheets as of January 28, 2024.

Financial Metric-Based Restricted Stock Units with a Market Condition

The Company grants financial metric-based restricted stock units with a market condition (the "Performance Awards") to certain executives of the Company, which are settled in shares and accounted for as equity awards. The Performance Awards have both a financial metric-based performance condition and a pre-defined market condition, which together determine the number of shares that ultimately vest, in addition to the condition of continued service. The number of vested shares for each of the three tranches of the awards, which are the one, two and three-year performance periods, is determined based on the Company’s attainment of pre-established revenue and non-GAAP operating income targets for the respective performance period. The vesting for tranches after the initial performance period is dependent on revenue and non-GAAP operating income for the preceding performance period. The market condition is determined based upon the Company’s total stockholder return

("TSR") benchmarked against the TSR of an index over the three-year performance period. For fiscal year 2025 grants, the benchmark was against the Russell 3000 Index. The market condition functions as a catch-up provision in determining the vesting of the third tranche of the awards based on the performance over the full three-year performance period. Generally, the award recipients must be employed for the entire performance period and be an active employee at the time of vesting of the awards.

The grant-date fair values of the first and second tranches of the Performance Awards are valued using the closing stock price on the grant date and the grant-date fair value of the third tranche of the Performance Awards is valued using a Monte Carlo simulation, which takes into consideration the possible outcomes pertaining to the TSR market condition. The compensation cost of the Performance Awards is recognized using the accelerated attribution method over the requisite service period based on the number of shares that are probable of attainment for each fiscal year.

In the six months ended July 28, 2024, the Company granted 443,943 Performance Awards. The weighted-average grant-date fair values for each of the one, two and three-year performance periods over which the Performance Awards vest were $36.26, $36.26 and $57.08, respectively. Under the terms of these awards, assuming the highest performance level of 200% with no cancellations due to forfeitures, the maximum potential number of shares that can be earned in aggregate for the cumulative fiscal years 2025, 2026 and 2027 performance periods would be 887,886 shares.

Market-Condition Restricted Stock Units, Employees

In fiscal year 2022, the Company granted 54,928 restricted stock units to certain executives of the Company, which had a pre-defined market condition that determined the number of shares that would ultimately vest. These market-condition restricted stock unit awards ("Market-Condition Awards") were eligible to vest during the period that commenced on March 9, 2021 and ended on March 5, 2024 (the "Performance Period") as follows: the restricted stock units covered by the Market-Condition Awards would vest if, during any consecutive 30 trading day period that commenced and ended during the Performance Period, the average per-share closing price of the Company’s common stock equaled or exceeded $95.00. The Market-Condition Awards were valued as of the grant date using a Monte Carlo simulation model and expense was recognized on a straight-line basis over the requisite service period, adjusted for any actual forfeitures. The grant-date fair value per unit of the awards granted in fiscal year 2022 was $49.55. In fiscal years 2024 and 2023, 18,309 and 14,084, respectively, of the Market-Condition Awards were forfeited due to the terminations of certain officers. In the first quarter of fiscal year 2025, the Performance Period ended and the remaining 22,535 Market-Condition Awards were canceled as the target achievement level was not met.

Note 5: Available-for-sale securities

The following table summarizes the values of the Company’s available-for-sale securities:


	July 28, 2024						January 28, 2024
(in thousands)	Fair Value		Amortized Cost		Gross Unrealized Loss		Fair Value		Amortized Cost		Gross Unrealized Loss
Convertible debt investments	$	12,294	$	14,303	$	(2,009)	$	12,117	$	14,454	$	(2,337)
Total available-for-sale securities	$	12,294	$	14,303	$	(2,009)	$	12,117	$	14,454	$	(2,337)

The following table summarizes the maturities of the Company’s available-for-sale securities:


	July 28, 2024
(in thousands)	Fair Value		Amortized Cost
Within 1 year	$	12,294	$	14,303
After 1 year through 5 years	—		—
Total available-for-sale securities	$	12,294	$	14,303

The Company's available-for-sale securities consist of investments in convertible debt instruments issued by privately-held companies and are recorded at fair value. See Note 6, Fair Value Measurements, for further discussion of the valuation of the available-for-sale securities. The available-for-sale securities with maturities within one year are included in "Other current assets". Unrealized gains or losses, net of tax, are recorded in "Accumulated other comprehensive loss, net" in the Balance Sheets, and realized gains or losses, as well as current expected credit loss reserves were recorded in "Non-operating expense, net" in the Statements of Operations.

Note 6: Fair Value Measurements

The following fair value hierarchy is applied for disclosure of the inputs used to measure fair value and prioritizes the inputs into three levels as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities in active markets or other inputs that are observable for the assets or liabilities, either directly or indirectly.

Level 3—Unobservable inputs based on the Company’s own assumptions, requiring significant management judgment or estimation.

Instruments Measured at Fair Value on a Recurring Basis

The fair values of financial assets and liabilities measured and recorded at fair value on a recurring basis were presented in the Balance Sheets as follows:


	July 28, 2024								January 28, 2024
(in thousands)	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Interest rate swap agreement	$	7,636	$	—	$	7,636	$	—	$	7,321	$	—	$	7,321	$	—

Convertible debt investments	12,294		—		—		12,294		12,117		—		—		12,117
Foreign currency forward contracts	—		—		—		—		169		—		169		—
Total financial assets	$	19,930	$	—	$	7,636	$	12,294	$	19,607	$	—	$	7,490	$	12,117

Financial liabilities:
Interest rate swap agreement	$	—	$	—	$	—	$	—	$	7	$	—	$	7	$	—
Foreign currency forward contracts	80		—		80		—		—		—		—		—

Total financial liabilities	$	80	$	—	$	80	$	—	$	7	$	—	$	7	$	—

During the six months ended July 28, 2024, the Company had no transfers of financial assets or liabilities between Level 1, Level 2 or Level 3. As of July 28, 2024 and January 28, 2024, the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.

The convertible debt investments are valued utilizing a combination of estimates that are based on the estimated discounted cash flows associated with the debt and the fair value of the equity into which the debt may be converted, all of which are Level 3 inputs.

The following table presents a reconciliation of the changes in convertible debt investments in the six months ended July 28, 2024:


(in thousands)
Balance at January 28, 2024	$	12,117

Sales	(222)

Interest accrued	399

Balance at July 28, 2024	$	12,294

The interest rate swap agreements are measured at fair value using readily available interest rate curves (Level 2 inputs). The fair value of each agreement is determined by comparing, for each settlement, the contract rate to the forward rate and discounting to the present value. Contracts in a gain position are recorded in "Other current assets" and "Other assets" in the Balance Sheets and the value of contracts in a loss position are recorded in "Accrued liabilities" and "Other long-term liabilities" in the Balance Sheets.

The foreign currency forward contracts are measured at fair value using readily available foreign currency forward and interest rate curves (Level 2 inputs). The fair value of each contract is determined by comparing the contract rate to the forward rate and discounting to the present value. Contracts in a gain position are recorded in "Other current assets" in the Balance Sheets and the value of contracts in a loss position are recorded in "Accrued liabilities" in the Balance Sheets.

See Note 17, Derivatives and Hedging Activities, for further discussion of the Company’s derivative instruments.

Instruments Not Recorded at Fair Value

Some of the Company’s financial instruments are not measured at fair value, but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents including money market deposits, net receivables, certain other assets, accounts payable, accrued expenses, accrued personnel costs, and other current liabilities. The Company’s revolving loans and Term Loans (as defined in Note 9, Long-Term Debt) are recorded at cost, which approximates fair value as the debt instruments bear interest at a floating rate. The 2027 Notes and 2028 Notes (as defined in Note 9, Long-Term Debt) are carried at face value less unamortized debt issuance costs, with interest expense reflecting the cash coupon plus the amortization of the capitalized issuance costs. The estimated fair values are determined based on the actual bid prices of the 2027 Notes and 2028 Notes as of the last business day of the period.

The following table displays the carrying values and fair values of the 2027 Notes and 2028 Notes:


		July 28, 2024				January 28, 2024
(in thousands)	Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
1.625% convertible senior notes due 2027, net (1)	Level 2	$	311,768	$	357,696	$	310,563	$	262,571
4.00% convertible senior notes due 2028, net (2)	Level 2	60,139		98,212		241,829		313,299
Total long-term debt, net of debt issuance costs		$	371,907	$	455,908	$	552,392	$	575,870

(1) The 1.625% convertible senior notes due 2027, net, are reflected net of $7.7 million and $8.9 million of unamortized debt issuance costs as of July 28, 2024 and January 28, 2024, respectively.

(2) The 4.00% convertible senior notes due 2028, net, are reflected net of $1.8 million and $8.2 million of unamortized debt issuance costs as of July 28, 2024 and January 28, 2024, respectively.

Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis

The Company reduces the carrying amounts of its intangible assets, long-lived assets and non-marketable equity securities to fair value when it determines they are impaired.

Investment Impairments and Credit Loss Reserves

The total credit loss reserve for the Company's held-to-maturity debt securities and available-for-sale debt securities remained flat at $4.5 million as of July 28, 2024 and January 28, 2024. In the six months ended July 28, 2024, the Company recorded an other-than-temporary impairment of $1.1 million on one of its non-marketable equity investments. Credit loss reserves related to the Company’s available-for-sale debt securities and held-to-maturity debt securities with maturities within one year are included in "Other current assets" in the Balance Sheets.

Note 7: Inventories

Inventories, consisting of material, material overhead, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or net realizable value and consisted of the following:


(in thousands)	July 28, 2024		January 28, 2024
Raw materials and electronic components	$	48,797	$	46,425
Work in progress	83,396		69,404
Finished goods	23,818		29,163
Total inventories	$	156,011	$	144,992

Note 8: Goodwill and Intangible Assets

Goodwill

The carrying amounts of goodwill by applicable operating segment were as follows:


(in thousands)	Signal Integrity		Analog Mixed Signal and Wireless		IoT Systems and Connectivity		Total
Balance at January 28, 2024	$	267,205	$	83,101	$	190,921	$	541,227



Cumulative translation adjustment	—		—		(123)		(123)

Balance at July 28, 2024	$	267,205	$	83,101	$	190,798	$	541,104

In the first quarter of fiscal year 2025, as a result of organizational restructuring, the Company combined the IoT Systems operating segment and the IoT Connected Services operating segment into the newly formed IoT Systems and Connectivity operating segment. There was no change to the reporting units. See Note 15, Segment Information, for further discussion of the Company's operating segments.

Goodwill is not amortized, but is tested for impairment at the reporting unit level using either a qualitative or quantitative assessment on an annual basis during the fourth quarter of each fiscal year, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit. As of July 28, 2024, there was no indication of impairment of the Company's goodwill balances and no goodwill impairment was recorded in the six months ended July 28, 2024.

During the second quarter of fiscal year 2024, as a result of reduced earnings forecasts associated with the business acquired from Sierra Wireless and macroeconomic conditions, including a rising interest rate environment, the Company performed an interim impairment test using a quantitative assessment of the reporting units related to the Sierra Wireless Acquisition (specifically, the IoT Connected Services, IoT System–Modules and IoT System–Routers reporting units). The interim impairment test resulted in $279.6 million of total pre-tax non-cash goodwill impairment charges recorded in the Statements of Operations during the second quarter of fiscal year 2024, consisting of $69.0 million of goodwill impairment for the IoT Connected Services reporting unit, $109.9 million of goodwill impairment for the IoT System–Modules reporting unit and $100.7 million goodwill impairment for the IoT System–Routers reporting unit. The fair values of these reporting units were determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach). Significant inputs to the reporting unit fair value measurements included forecasted cash flows, discount rates, terminal growth rates and earnings multiples, which were determined by management estimates and assumptions. The reporting unit fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

Purchased and Other Intangibles

The following table sets forth the Company’s finite-lived intangible assets, which are amortized over their estimated useful lives:


		July 28, 2024
(in thousands, except estimated useful life)	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Accumulated Impairment		Net Carrying Amount
Core technologies	1-8 years	$	154,797	$	(39,525)	$	(91,792)	$	23,480
Customer relationships	1-10 years	52,117		(13,476)		(34,777)		3,864
Trade name	2-10 years	9,000		(3,058)		(4,816)		1,126
Capitalized development costs	3 years	295		(49)		—