# Semtech Corp: Form 10-Q for the period ended Oct 29, 2023

- Company: [Semtech Corp](/companies/smtc.md) (CIK 88941)
- Form: 10-Q
- Filed: 2023-12-06
- Accepted by EDGAR: Dec 6, 2023, 16:38 ET
- Period: 2023-10-29
- Accession: 0000088941-23-000029
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/88941/000008894123000029/smtc-20231029.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/88941/000008894123000029/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-10-29.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-31 to 2023-10-29 | $200.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-30 to 2023-10-29 | $675.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-31 to 2023-10-29 | $107.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-30 to 2023-10-29 | $379.2m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-31 to 2023-10-29 | $93.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-30 to 2023-10-29 | $296.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-31 to 2023-10-29 | $46.9m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-30 to 2023-10-29 | $144.9m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-31 to 2023-10-29 | $47.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-30 to 2023-10-29 | $165.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-31 to 2023-10-29 | −$12.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-30 to 2023-10-29 | −$324.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-31 to 2023-10-29 | −$311.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-30 to 2023-10-29 | $53.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-31 to 2023-10-29 | −$38.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-30 to 2023-10-29 | −$449.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-31 to 2023-10-29 | −$0.60 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-30 to 2023-10-29 | −$7.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-31 to 2023-10-29 | −$0.60 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-30 to 2023-10-29 | −$7.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-31 to 2023-10-29 | 64,216,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-30 to 2023-10-29 | 64,048,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-30 to 2023-10-29 | −$107.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-30 to 2023-10-29 | $27.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-30 to 2023-10-29 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-10-29 | $123.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-10-29 | $572.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-10-29 | $2.04bn | us-gaap:Assets |
| Current liabilities | at 2023-10-29 | $239.0m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-10-29 | $1.37bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-10-29 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-10-29 | $334.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 64,133 characters.

*The following "Management’s Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with our interim unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this "Quarterly Report"),“Risk Factors” and "Special Note Regarding Forward-Looking and Cautionary Statements" in this Quarterly Report.*

Our interim unaudited condensed consolidated balance sheets are referred to herein as the "Balance Sheets" and interim unaudited condensed consolidated statements of operations are referred to herein as the "Statements of Operations." Amounts and percentages may not add precisely due to rounding.

### Overview

Semtech Corporation (together with its consolidated subsidiaries, the "Company", "we", "our", or "us") is a high-performance, IoT systems and cloud connectivity service provider. We account for results in four reportable segments—Signal Integrity, Advanced Protection and Sensing, IoT Systems and IoT Connected Services. Historically, we had three operating segments—Signal Integrity, Wireless and Sensing, and Protection—that had been aggregated into two reportable segments identified as the High-Performance Analog Group, which was comprised of the Signal Integrity and Wireless and Sensing operating segments, and the System Protection Group, which was comprised of the Protection operating segment. In the fourth quarter of fiscal year 2023, as a result of organizational restructuring, the proximity sensing business and the power business were moved from the previous Wireless and Sensing operating segment into the newly formed Advanced Protection and Sensing operating segment, which also includes the Protection business. Following this organizational restructuring, we determined that Signal Integrity and the revised Wireless and Sensing operating segments were no longer economically similar and as a result we concluded that Signal Integrity should be separately reported as its own reportable segment. Also in the fourth quarter of fiscal year 2023, in conjunction with the acquisition of Sierra Wireless, Inc. ("Sierra Wireless") we formed two additional operating segments including the IoT Systems operating segment, which absorbed our revised Wireless and Sensing operating segment, and the IoT Connected Services operating segment. As a result of the reorganization and the Sierra Wireless Acquisition (as defined below), we have four reportable segments. All prior year information in the tables below has been revised retrospectively to reflect the change to our reportable segments. See Note 15, Segment Information, to our interim unaudited condensed consolidated financial statements for segment information.

*Signal Integrity.* We design, develop, manufacture and market a portfolio of optical data communications and video transport products used in a wide variety of infrastructure and industrial applications. Our comprehensive portfolio includes integrated circuits ("ICs") for data centers, enterprise networks, passive optical networks ("PON"), and wireless base station optical transceivers. Our high-speed interfaces range from 100Mbps to 800Gbps and support key industry standards such as Fibre Channel, Infiniband, Ethernet, PON and synchronous optical networks. Our video products offer advanced solutions for next generation high-definition broadcast applications, as well as highly differentiated video-over-IP technology for professional audio video applications.

*Advanced Protection and Sensing.* We design, develop, manufacture and market high-performance protection devices, which are often referred to as transient voltage suppressors ("TVS") and specialized sensing products. TVS devices provide protection for electronic systems where voltage spikes (called transients), such as electrostatic discharge, electrical over stress or secondary lightning surge energy, can permanently damage sensitive ICs. Our portfolio of protection solutions include filter and termination devices that are integrated with the TVS device. Our products provide robust protection while preserving signal integrity in high-speed communications, networking and video interfaces. These products also operate at very low voltage. Our protection products can be found in a broad range of applications including smart phones, LCD and organic light-emitting diode TVs and displays, set-top boxes, monitors and displays, tablets, computers, notebooks, base stations, routers, automobile and industrial systems. Our unique sensing technology enables proximity sensing and advanced user interface solutions for our mobile and consumer products.

*IoT Systems.* We design, develop, manufacture and market a portfolio of specialized radio frequency products used in a wide variety of industrial, medical and communications applications. Our wireless products, which include our LoRa® devices and wireless radio frequency technology, feature industry leading and longest range industrial, scientific and medical radio, enabling a lower total cost of ownership and increased reliability. These features make these products particularly suitable for machine-to-machine and IoT applications. We also offer a comprehensive product portfolio of IoT solutions that enable businesses to connect and manage their devices, collect and analyze data, and improve decision-making. The portfolio includes a wide range of modules, gateways, routers, and connected services that are designed to meet the specific needs of different industries and applications. Sierra Wireless' modules are available in a variety of form factors and connectivity options, including LTE-M, NB-IoT and 5G, and can be integrated into an array of devices and systems. Our gateways and routers are designed to provide reliable and secure connectivity for IoT devices, while our connected services enable businesses to manage devices and connectivity so businesses can navigate the complex IoT landscape and realize the full potential of connected devices.

*IoT Connected Services.* We design, develop, operate and market a portfolio of connected services used in a wide variety of industrial, medical and communications applications. Our connected services include wireless connectivity and cloud-based services for customers to deploy, connect, and operate their end applications. Our services have been purpose-built for IoT applications and include features such as SIM and subscription management, device and data management, geolocation support, as well as reporting and alerting that can be configured or tailored to a variety of IoT use cases.

Our net sales by reportable segment were as follows:

*(in thousands)*

|  | Three Months Ended October 29, 2023 | October 30, 2022 | Nine Months Ended October 29, 2023 | October 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Signal Integrity | $48,737 | $76,705 | $136,890 | $243,362 |
| Advanced Protection and Sensing | 50,569 | 51,225 | 135,147 | 188,922 |
| IoT Systems | 77,373 | 49,688 | 331,404 | 156,737 |
| IoT Connected Services | 24,220 | — | 72,369 | — |
| Total | $200,899 | $177,618 | $675,810 | $589,021 |

We design, develop, manufacture and market a wide range of products for commercial applications, the majority of which are sold into the infrastructure, high-end consumer and industrial end markets.

*Infrastructure:* data centers, PON, base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless local area network and other communication infrastructure equipment.

*High-End Consumer:* smartphones, tablets, wearables, desktops, notebooks, and other handheld products, wireless charging, set-top boxes, digital televisions, monitors and displays, digital video recorders and other consumer equipment.

*Industrial:* IoT applications, analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, medical, security systems, automotive, industrial and home automation and other industrial equipment.

Our end customers for our silicon solutions are primarily original equipment manufacturers that produce and sell technology solutions. Our IoT module, router, gateways and managed connectivity solutions ship to IoT device makers and enterprises to provide IoT connectivity to end devices.

### Recent Developments

#### Leadership

On September 5, 2023, our board of directors (the “Board” or “Board of Directors”) appointed Mark Lin to serve as our Executive Vice President and Chief Financial Officer, which became effective on October 2, 2023 (the "Transition Date"). Mr. Lin succeeded Mr. Emeka Chukwu as the Company’s Executive Vice President and Chief Financial Officer on the Transition Date.

Subsequent to quarter end and pursuant to the Cooperation Agreement entered into by and among us and Lion Point Capital, LP and certain of its affiliates on March 17, 2023, the Board appointed Julie G. Ruehl as a member of the Board, effective December 1, 2023, to serve until our calendar year 2024 annual meeting of stockholders and until her successor is elected or qualified, or until her earlier death, resignation or removal.

#### Restructuring

During the second quarter of fiscal year 2024, we commenced a reduction in workforce plan. Additionally, during the nine months ended October 29, 2023, we have undertaken structural reorganization actions to reduce our workforce as a result of cost-saving measures and internal resource alignment including from the realization of synergies of the acquisition of Sierra Wireless completed on January 12, 2023 (the "Sierra Wireless Acquisition"). Total restructuring charges in the three and nine months ended October 29, 2023 were $3.6 million and $15.5 million, respectively, of which $0.2 million and $6.0 million in the three and nine months ended October 29, 2023, respectively, related to the reduction in workforce plan that commenced during the second quarter of fiscal year 2024 and was substantially completed during the third quarter of fiscal year 2024. For additional information, see Note 13, Restructuring, to our interim unaudited condensed consolidated financial statements.

#### Financing

On October 19, 2023, we entered into the third amendment (“Third Amendment”) to the Credit Agreement (as such term is defined in "―Liquidity and Capital Resources―Credit Agreement" below) in order to, among other things, i) extend the financial covenant relief period under the Credit Agreement by one year to April 30, 2026, (ii) increase the maximum consolidated leverage ratio covenant for certain test periods as set forth in the Third Amendment, (iii) reduce the minimum consolidated interest coverage ratio covenant for certain test periods as set forth in the Third Amendment and (iv) make certain other changes as set forth in the Third Amendment.

On October 26, 2023, we issued and sold $250.0 million in aggregate principal amount of our 4.00% Convertible Senior Notes due 2028 (the “2028 Notes”) in a private placement. The 2028 Notes were issued pursuant to an indenture, dated October 26, 2023, by and among the Company, the subsidiary guarantors party thereto, and U.S. Bank Trust Company, National Association, as trustee. In connection with entering into the Third Amendment, we used the proceeds from the offering of the 2028 Notes and cash on hand to repay $250 million aggregate principal amount of the term loans outstanding under the Credit Agreement. The 2028 Notes bear interest at a rate of 4.00% per year, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2024. The 2028 Notes will mature on November 1, 2028, unless earlier converted, redeemed or repurchased. For additional information on the 2028 Notes, see Note 9, Long-Term Debt to our interim unaudited condensed consolidated financial statements.

### Impact of Macroeconomic Conditions

Macroeconomic factors such as market volatility, inflationary pressures, rising interest rates, geopolitical tensions and recessionary concerns have caused uncertainty in end customer demand and have resulted in elevated channel inventories. We believe that we can continue to take appropriate actions to align our inventory levels with anticipated customer demand profiles.

### Factors Affecting Our Performance

Most of our sales to customers are made on the basis of individual customer purchase orders and many customers include cancellation provisions in their purchase orders. We rely on orders received and shipped within the same quarter for a meaningful portion of our sales. Orders received and shipped in the third quarters of fiscal years 2024 and 2023 were 47% and 23% of net sales, respectively. In the prior year period, as a result of macro conditions where demand was exceeding supply and we were seeing global shortages, lead times expanded, resulting in fewer orders being shipped and received in the same quarter. Sales made through independent distributors during the third quarters of fiscal years 2024 and 2023 were 72% and 83%, respectively, of net sales and the remainder were made directly to customers. The lower direct sales in the prior year period was due to customers electing to leverage the value of distribution to better manage their supply chain.

We are a global business with customers and suppliers around the world. A significant amount of our third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located outside the United States, including Taiwan and China. A significant amount of our assembly and test operations are conducted by third-party contractors located outside the United States, including Vietnam, China, Taiwan, Malaysia and Mexico. Net sales outside the United States constituted 78% and 86% during the third quarters of fiscal years 2024 and 2023, respectively. Approximately 59% and 71% of our net sales during the third quarters of fiscal years 2024 and 2023, respectively, were to customers located in the Asia-Pacific region. We are subject to export restrictions and trade regulations, which have limited our ability to sell to certain customers.

We use several metrics as indicators of future potential growth. The indicators that we believe best correlate to potential future sales growth are design wins and new product releases. There are many factors that may cause a design win or new product release to not result in sales, including a customer decision not to go to system production, a change in a customer’s perspective regarding a product’s value or a customer’s product failing in the end market. As a result, although a design win or new product introduction is an important step towards generating future sales, it does not necessarily result in us being awarded business or receiving a purchase commitment.

Inflationary factors could affect our future performance if we are unable to pass higher costs on to our customers.

### Results of Operations

The following table sets forth, for the periods indicated, our Statements of Operations expressed as a percentage of net sales.

|  | Three Months Ended October 29, 2023 | October 30, 2022 | Nine Months Ended October 29, 2023 | October 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of sales | 48.7% | 34.9% | 51.5% | 35.2% |
| Amortization of acquired technology | 5.0% | 0.6% | 4.7% | 0.5% |
| Total cost of sales | 53.7% | 35.5% | 56.2% | 35.7% |
| **Gross profit** | 46.3% | 64.5% | 43.8% | 64.3% |
| **Operating costs and expenses, net:** |  |  |  |  |
| Selling, general and administrative | 23.7% | 22.6% | 24.4% | 22.4% |
| Product development and engineering | 23.4% | 19.7% | 21.4% | 19.4% |
| Intangible amortization | 2.4% | —% | 2.2% | —% |
| Restructuring | 1.8% | 1.3% | 2.2% | 0.4% |
| Gain on sale of business | —% | (0.2)% | —% | (3.1)% |
| Goodwill impairment | 1.1% | —% | 41.7% | —% |
| Total operating costs and expenses, net | 52.4% | 43.5% | 91.9% | 39.1% |
| **Operating (loss) income** | (6.2)% | 21.0% | (48.0)% | 25.2% |
| Interest expense | (14.1)% | (5.1)% | (10.8)% | (1.9)% |
| Interest income | 0.3% | 0.5% | 0.3% | 0.3% |
| Non-operating income (expense), net | 1.8% | —% | 0.2% | (0.1)% |
| Investment impairments and credit loss reserves, net | (1.0)% | —% | (0.3)% | 0.1% |
| **(Loss) income before taxes and equity method (loss) income** | (19.2)% | 16.4% | (58.6)% | 23.5% |
| (Benefit) provision for income taxes | (0.2)% | 3.6% | 8.0% | 4.5% |
| **Net (loss) income before equity method (loss) income** | (19.0)% | 12.8% | (66.5)% | 19.0% |
| Equity method (loss) income | —% | —% | —% | —% |
| **Net (loss) income** | (19.0)% | 12.8% | (66.5)% | 19.1% |
| Net loss attributable to noncontrolling interest | —% | —% | —% | —% |
| **Net (loss) income attributable to common stockholders** | (19.0)% | 12.8% | (66.5)% | 19.1% |
| Percentages may not add precisely due to rounding. |  |  |  |  |

Our regional mix of income or loss before taxes and equity method income or loss was as follows:

*(in thousands)*

|  | Three Months Ended October 29, 2023 | October 30, 2022 | Nine Months Ended October 29, 2023 | October 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Domestic | $21,165 | $(52,087) | $(71,146) | $(39,084) |
| Foreign | (59,717) | 81,193 | (324,632) | 177,615 |
| Total | $(38,552) | $29,106 | $(395,778) | $138,531 |

Domestic performance includes higher levels of share-based compensation compared to foreign operations.

### Comparison of the Three Months Ended October 29, 2023 and October 30, 2022

### Net Sales

The following table summarizes our net sales by major end market:

*(in thousands, except percentages)*

|  | Three Months Ended October 29, 2023 Net Sales | % Net Sales | October 30, 2022 Net Sales | % Net Sales | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Infrastructure | $43,191 | 21% | $70,475 | 39% | (39)% |
| High-End Consumer | 37,553 | 19% | 34,662 | 20% | 8% |
| Industrial | 120,155 | 60% | 72,481 | 41% | 66% |
| Total | $200,899 | 100% | $177,618 | 100% | 13% |

Net sales for the third quarter of fiscal year 2024 were $200.9 million, an increase of 13.1% compared to $177.6 million for the third quarter of fiscal year 2023 driven by the Sierra Wireless Acquisition, which contributed $83.5 million of net sales to our industrial end market, partially offset by softer demand impacting our industrial and infrastructure end markets. Customer demand has also been impacted by elevated channel inventories. We experienced a decrease of $27.3 million in net sales from our infrastructure end market for the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023, primarily driven by a $25.7 million decrease in PON sales and a $4.5 million decrease in wireless infrastructure sales, and a $3.4 million decrease in infrastructure TVS, partially offset by a $6.5 million increase in data center sales. Net sales from our high-end consumer end market increased $2.9 million for the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 primarily driven by a $4.7 million increase in TVS consumer product sales and a $2.2 million increase in our proximity sensing product sales, partially offset by decreases in other high-end consumer products. Net sales from our industrial end market increased $47.7 million during the third quarter of fiscal year 2024 versus the same period in the prior year primarily due to the Sierra Wireless Acquisition driven by $37.9 million in module sales, $23.2 million in managed connectivity sales and $21.4 million in router sales, partially offset by a $30.6 million decrease in the portion of LoRa-enabled product sales allocated to the industrial end market and a $4.2 million decrease in broadcast sales.

The following table summarizes our net sales by reportable segment:

*(in thousands, except percentages)*

|  | Three Months Ended October 29, 2023 Net Sales | % Net Sales | October 30, 2022 Net Sales | % Net Sales | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Signal Integrity | $48,737 | 24% | $76,705 | 43% | (36)% |
| Advanced Protection and Sensing | 50,569 | 25% | 51,225 | 29% | (1)% |
| IoT Systems | 77,373 | 39% | 49,688 | 28% | 56% |
| IoT Connected Services | 24,220 | 12% | — | —% | 100% |
| Total | $200,899 | 100% | $177,618 | 100% | 13% |

Net sales were impacted by softer demand across all reportable segments. Net sales from Signal Integrity decreased $28.0 million in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 primarily driven by a $25.7 million decrease in PON sales, a $4.5 million decrease in wireless infrastructure sales and a $4.2 million decrease in broadcast sales, partially offset by a $6.5 million increase in data center sales. Net sales from Advanced Protection and Sensing decreased $0.7 million in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 primarily driven by a $4.2 million decrease in infrastructure and industrial TVS product sales and a $3.7 million decrease in power sales, partially offset by a $4.7 million increase in TVS consumer product sales, a $2.2 million increase in proximity sensing sales and increases in other Advanced Protection and Sensing products. Net sales from IoT Systems increased $27.7 million primarily due to the Sierra Wireless Acquisition driven by $37.9 million in module sales and $21.4 million in router sales, partially offset by a $30.6 million decrease in LoRa-enabled product sales. Net sales from IoT Connected Services increased $24.2 million in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 due to the Sierra Wireless Acquisition, which contributed $23.2 million of managed connectivity sales.

### Gross Profit

The following table summarizes our gross profit and gross margin by reportable segment:

*(in thousands, except percentages)*

|  | Three Months Ended October 29, 2023 Gross Profit | Gross Margin | October 30, 2022 Gross Profit | Gross Margin |
| --- | ---: | ---: | ---: | ---: |
| Signal Integrity | $25,323 | 52.0% | $53,384 | 69.6% |
| Advanced Protection and Sensing | 22,637 | 44.8% | 27,169 | 53.0% |
| IoT Systems | 42,576 | 55.0% | 35,869 | 72.2% |
| IoT Connected Services | 11,770 | 48.6% | — | —% |
| Unallocated costs, including share-based compensation and amortization of acquired technology | (9,340) |  | (1,853) |  |
| Total | $92,966 | 46.3% | $114,569 | 64.5% |

In the third quarter of fiscal year 2024, gross profit decreased $21.6 million to $93.0 million from $114.6 million in the third quarter of fiscal year 2023. This decrease was primarily due to a $9.0 million increase in the amortization of acquired technology intangible assets related to the Sierra Wireless Acquisition, a $28.1 million decrease from Signal Integrity, which experienced lower sales due to softer demand, and a $4.5 million decrease from Advanced Protection and Sensing, which experienced lower sales due to softer demand, partially offset by a $6.7 million increase from IoT Systems due to the Sierra Wireless Acquisition, partially offset by softer demand, and $11.8 million from IoT Connected Services due to the Sierra Wireless Acquisition.

Our gross margin was 46.3% in the third quarter of fiscal year 2024, compared to 64.5% in the third quarter of fiscal year 2023. Gross margin for Signal Integrity was 52.0% in the third quarter of fiscal year 2024, compared to 69.6% in the third quarter of fiscal year 2023, primarily due to an unfavorable product mix driven by lower PON sales. Gross margin for Advanced Protection and Sensing was 44.8% in the third quarter of fiscal year 2024, compared to 53.0% in the third quarter of fiscal year 2023, reflecting an unfavorable product mix driven by lower industrial automation and automotive sales. Gross margin from IoT Systems was 55.0% in the third quarter of fiscal year 2024, compared to 72.2% in the third quarter of fiscal year 2023, reflecting an unfavorable product mix driven by lower LoRa-enabled product sales. Gross margin from IoT Connected Services was 48.6% in the third quarter of fiscal year 2024.

The majority of our manufacturing is outsourced, resulting in relatively low fixed manufacturing costs and variable costs that highly correlate with volume.

### Operating Costs and Expenses, net

*(in thousands, except percentages)*

|  | Three Months Ended October 29, 2023 |  | October 30, 2022 |  | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Selling, general and administrative | $47,663 | 45% | $40,227 | 52% | 18% |
| Product development and engineering | 46,911 | 45% | 35,056 | 45% | 34% |
| Intangible amortization | 4,853 | 5% | — | —% | 100% |
| Restructuring | 3,646 | 3% | 2,244 | 3% | 62% |
| Gain on sale of business | — | —% | (327) | —% | 100% |
| Goodwill impairment | 2,266 | 2% | — | —% | 100% |
| Total operating costs and expenses, net | $105,339 | 100% | $77,200 | 100% | 36% |

#### Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses increased $7.4 million in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 primarily as a result of a $4.5 million net increase in staffing-related costs due to higher headcount, a $1.4 million increase in facility expenses, and a $1.0 million increase in transaction and integration expenses, all of which were primarily related to the Sierra Wireless Acquisition.

#### Product Development and Engineering Expenses

Product development and engineering expenses increased $11.9 million in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 primarily as a result of an $8.3 million net increase in staffing-related costs due to higher headcount resulting from the Sierra Wireless Acquisition and an increase of $3.3 million from new product introduction expenses. The levels of product development and engineering expenses reported in a fiscal period can be significantly impacted, and therefore experience period over period volatility, by the number of new product tape-outs and by the timing of recoveries from non-recurring engineering services, which are typically recorded as a reduction to product development and engineering expense.

#### Intangible Amortization

Intangible amortization increased by $4.9 million in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 due to intangible assets acquired in the Sierra Wireless Acquisition related to customer relationships and trade name. The amortization of acquired technology intangible assets is reflected in cost of sales.

#### Restructuring

Restructuring increased by $1.4 million in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 primarily due to structural reorganization actions to reduce our workforce as a result of cost-saving measures and internal resource alignment including from the realization of synergies of the Sierra Wireless Acquisition.

#### Gain on Sale of Business

Gain on sale of business decreased by $0.3 million in the third quarter of fiscal year 2024 compared to the third quarter of fiscal year 2023 due to the divestiture of our high reliability discrete diodes and assemblies business (the "Disposal Group") in May 2022.

#### Goodwill Impairment

Goodwill impairment was $2.3 million for the third quarter of fiscal year 2024 primarily due to valuation adjustments of goodwill related to the Sierra Wireless Acquisition. See Note 8, Goodwill and Intangible Assets, to our interim unaudited condensed consolidated financial statements for additional information.

### Interest Expense

Interest expense, including amortization of debt issuance costs, was $28.3 million and $9.0 million for the third quarters of fiscal years 2024 and 2023, respectively. The increase was primarily due to additional debt agreements entered into during fiscal year 2023 related to financings for the Sierra Wireless Acquisition and refinancing activities undertaken during the third quarter of fiscal year 2024, as well as higher interest rates on the portion of our outstanding floating-rate debt that was unhedged during the period.

### Investment Impairments and Credit Loss Reserves, net

During the third quarter of fiscal year 2024, investment impairments and credit loss reserves, net totaled a loss of $2.0 million primarily due to a $1.6 million other-than-temporary impairment on one of our non-marketable equity investments and adjustments to our credit loss reserve for our available-for-sale debt securities. During the third quarter of fiscal year 2023, investment impairments and credit loss reserves, net totaled a loss of $0.03 million due to adjustments to our credit loss reserve for our available-for-sale debt securities.

### (Benefit) Provision for Income Taxes

We recorded an income tax benefit of $0.3 million in the third quarter of fiscal year 2024, compared to income tax expense of $6.3 million in the third quarter of fiscal year 2023. The effective tax rates for the third quarters of fiscal years 2024 and 2023 were a provision rate of 0.8% and a provision rate of 21.7%, respectively. The effective tax rates in the third quarters of fiscal years 2024 and 2023 differ from the statutory federal income tax rate of 21% primarily due to a regional mix of income, changes in valuation allowance, non-deductibility of goodwill impairment, impact of global intangible low-taxed income ("GILTI") and research and development ("R&D") credits. The Tax Cuts and Jobs Act ("Tax Act") requires R&D costs incurred for tax years beginning after December 31, 2021 to be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on where the research activities are conducted. We have elected to treat GILTI as a period cost and the additional capitalization of R&D costs within GILTI increases our provision for income taxes.

We receive a tax benefit from a tax holiday that was granted in Switzerland. The tax holiday commenced on January 30, 2017, and was effective for five years (the “Initial Term”). Since we met certain staffing targets, the holiday has been extended for an additional five years. The maximum benefit under this tax holiday is CHF 500.0 million of cumulative after tax profit, which equates to a maximum potential tax savings of CHF 44.0 million. Once the extended term of the tax holiday expires or we achieve the maximum benefit, our effective tax rate could be negatively impacted if we are unable to negotiate an extension or expansion of the tax holiday. The Swiss Tax Reform that was enacted during fiscal year 2020 reduces the Swiss Cantonal tax rate, which further increases the benefit of our Tax Holiday.

As a global organization, we are subject to audit by taxing authorities in various jurisdictions. To the extent that an audit, or the closure of a statute of limitations, results in adjusting our reserves for uncertain tax positions, our effective tax rate could experience extreme volatility since any adjustment would be recorded as a discrete item in the period of adjustment.

For further information on the effective tax rate and the Tax Act’s impact, see Note 10, Income Taxes, to our interim unaudited condensed consolidated financial statements.

### Comparison of the Nine Months Ended October 29, 2023 and October 30, 2022

### Net Sales

The following table summarizes our net sales by major end market:

*(in thousands, except percentages)*

|  | Nine Months Ended October 29, 2023 Net Sales | % Net Sales | October 30, 2022 Net Sales | % Net Sales | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Infrastructure | $124,560 | 18% | $231,202 | 39% | (46)% |
| High-End Consumer | 93,163 | 14% | 123,497 | 21% | (25)% |
| Industrial | 458,087 | 68% | 234,322 | 40% | 95% |
| Total | $675,810 | 100% | $589,021 | 100% | 15% |

Net sales for the first nine months of fiscal year 2024 were $675.8 million, an increase of 14.7% compared to $589.0 million for the first nine months of fiscal year 2023 driven by the Sierra Wireless Acquisition, which contributed $341.8 million of net sales to our industrial end market, partially offset by softer demand impacting all end markets. Customer demand has also been impacted by elevated channel inventories. Net sales from our industrial end market increased $223.8 million for the first nine months of fiscal year 2024 versus the same period in the prior year primarily due to the Sierra Wireless Acquisition driven by $194.4 million in module sales, $75.0 million in router sales and $69.2 million in managed connectivity sales, partially offset by a $93.4 million decrease in the portion of LoRa-enabled product sales allocated to the industrial end market, an $11.3 million decrease in the portion of industrial automation and automotive sales allocated to the industrial end market, an $8.2 million decrease in broadcast sales, and a $2.9 million decrease in sales from the Disposal Group. We experienced a decrease of $106.6 million in net sales from our infrastructure end market during the first nine months of fiscal year 2024 compared to the first nine months of fiscal year 2023, primarily driven by a $69.3 million decrease in PON sales, a $16.8 million decrease in wireless infrastructure sales, an $8.3 million decrease in data center sales and decreases in other infrastructure product sales. Net sales from our high-end consumer end market decreased $30.3 million during the first nine months of fiscal year 2024 compared to the first nine months of fiscal year 2023 primarily driven by a $29.0 million decrease in TVS consumer product sales.

The following table summarizes our net sales by reportable segment:

*(in thousands, except percentages)*

|  | Nine Months Ended October 29, 2023 Net Sales | % Net Sales | October 30, 2022 Net Sales | % Net Sales | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Signal Integrity | $136,890 | 20% | $243,362 | 41% | (44)% |
| Advanced Protection and Sensing | 135,147 | 20% | 188,922 | 32% | (28)% |
| IoT Systems | 331,404 | 49% | 156,737 | 27% | 111% |
| IoT Connected Services | 72,369 | 11% | — | —% | 100% |
| Total | $675,810 | 100% | $589,021 | 100% | 15% |

Net sales were impacted by softer demand across all reportable segments. Net sales from Signal Integrity decreased $106.5 million in the first nine months of fiscal year 2024 compared to the first nine months of fiscal year 2023 primarily driven by a $69.3 million decrease in PON sales, a $16.8 million decrease in wireless infrastructure sales, an $8.3 million decrease in data center sales and an $8.2 million decrease in broadcast sales. Net sales from Advanced Protection and Sensing decreased $53.8 million in the first nine months of fiscal year 2024 compared to the first nine months of fiscal year 2023 primarily driven by a $29.0 million decrease in TVS consumer product sales and a $19.7 million decrease in infrastructure and industrial TVS product sales. Net sales from IoT Systems increased $174.7 million in the first nine months of fiscal year 2024 compared to the first nine months of fiscal year 2023 primarily due to the Sierra Wireless Acquisition driven by $194.4 million in module sales and $75.0 million in router sales, partially offset by a $93.5 million decrease in LoRa-enabled product sales. Net sales from IoT Connected Services increased $72.4 million in the first nine months of fiscal year 2024 compared to the first nine months of fiscal year 2023 due to the Sierra Wireless Acquisition, which contributed $69.2 million of managed connectivity sales and $3.2 million of IoT application sales.

### Gross Profit

The following table summarizes our gross profit and gross margin by reportable segment:

*(in thousands, except percentages)*

|  | Nine Months Ended October 29, 2023 Gross Profit | Gross Margin | October 30, 2022 Gross Profit | Gross Margin |
| --- | ---: | ---: | ---: | ---: |
| Signal Integrity | $78,257 | 57.2% | $169,475 | 69.6% |
| Advanced Protection and Sensing | 69,152 | 51.2% | 100,463 | 53.2% |
| IoT Systems | 152,908 | 46.1% | 114,359 | 73.0% |
| IoT Connected Services | 34,836 | 48.1% | — | —% |
| Unallocated costs, including share-based compensation | (38,513) |  | (5,752) |  |
| Total | $296,640 | 43.9% | $378,545 | 64.3% |

In the first nine months of fiscal year 2024, gross profit decreased $81.9 million to $296.6 million from $378.5 million in the first nine months of fiscal year 2023. This decrease was primarily due to a $28.3 million increase in the amortization of acquired technology intangible assets related to the Sierra Wireless Acquisition, $3.3 million of inventory step-up related to the Sierra Wireless Acquisition, a $91.2 million decrease from Signal Integrity, which experienced lower sales due to softer demand, and a $31.3 million decrease from Advanced Protection and Sensing, which experienced lower sales due to softer demand, partially offset by a $38.5 million increase from IoT Systems due to the Sierra Wireless Acquisition, partially offset by softer demand, and $34.8 million from IoT Connected Services due to the Sierra Wireless Acquisition.

Our gross margin was 43.9% in the first nine months of fiscal year 2024, compared to 64.3% in the first nine months of fiscal year 2023. Gross margin from Signal Integrity was 57.2% in the first nine months of fiscal year 2024, compared to 69.6% in the first nine months of fiscal year 2023, primarily due to an unfavorable product mix driven by lower PON sales. Gross margin from Advanced Protection and Sensing was 51.2% in the first nine months of fiscal year 2024, compared to 53.2% in the first nine months of fiscal year 2023, primarily due to pricing pressures and lower overhead absorption. Gross margin from IoT Systems was 46.1% the first nine months of fiscal year 2024, compared to 73.0% in the first nine months of fiscal year 2023, reflecting an unfavorable product mix driven by lower LoRa-enabled product sales. Gross margin from IoT Connected Services was 48.1% in the first nine months of fiscal year 2024.

### Operating Costs and Expenses, net

*(in thousands, except percentages)*

|  | Nine Months Ended October 29, 2023 |  | October 30, 2022 |  | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Selling, general and administrative | $165,022 | 28% | $131,710 | 57% | 25% |
| Product development and engineering | 144,945 | 23% | 114,446 | 50% | 27% |
| Intangible amortization | 14,606 | 2% | — | —% | 100% |
| Restructuring | 14,608 | 2% | 2,244 | 1% | 551% |
| Gain on sale of business | — | —% | (18,313) | (8)% | 100% |
| Goodwill impairment | 281,821 | 45% | — | —% | 100% |
| Total operating costs and expenses, net | $621,002 | 100% | $230,087 | 100% | 170% |

#### Selling, General and Administrative Expenses

SG&A expenses increased $33.3 million in the first nine months of fiscal year 2024 compared to the first nine months of fiscal year 2023 primarily as a result of an $18.6 million net increase in staffing-related costs due to higher headcount, a $10.8 million increase in transaction and integration expenses, and a $3.6 million increase in facility expenses, all of which were primarily related to the Sierra Wireless Acquisition.

#### Product Development and Engineering Expenses

Product development and engineering expenses increased $30.5 million in the first nine months of fiscal year 2024 compared to the first nine months of fiscal year 2023 primarily as a result of a $24.5 million net increase in staffing-related costs due to higher headcount resulting from the Sierra Wireless Acquisition and an increase of $3.7 million from new product introduction expenses.

#### Intangible Amortization

Intangible amortization increased by $14.6 million for the first nine months of fiscal year 2024 compared to the same period in fiscal year 2023 due to intangible assets acquired in the Sierra Wireless Acquisition related to customer relationships and trade name. The amortization of acquired technology intangible assets is reflected in cost of sales.

#### Restructuring

Restructuring increased by $12.4 million for the first nine months of fiscal year 2024 compared to the same period in fiscal year 2023 primarily due to structural reorganization actions to reduce our workforce as a result of cost-saving measures and internal resource alignment including from the realization of synergies of the Sierra Wireless Acquisition.

#### Gain on Sale of Business

Gain on sale of business decreased by $18.3 million for the first nine months of fiscal year 2024 compared to the same period in fiscal year 2023 due to the divestiture of the Disposal Group in May 2022.

#### Goodwill Impairment

Goodwill impairment was $281.8 million for the first nine months of fiscal year 2024 primarily due to valuation adjustments of goodwill related to the Sierra Wireless Acquisition. See Note 8, Goodwill and Intangible Assets, to our interim unaudited condensed consolidated financial statements for additional information.

### Interest Expense

Interest expense, including amortization of debt issuance costs, was $73.0 million and $11.5 million for the first nine months of fiscal years 2024 and 2023, respectively. The increase was primarily due to additional debt agreements entered into during fiscal year 2023 related to financings for the Sierra Wireless Acquisition and refinancing activities undertaken during the third quarter of fiscal year 2024, as well as higher interest rates on the portion of our outstanding floating-rate debt that was unhedged during the period.

### Investment Impairments and Credit Loss Reserves, net

During the first nine months of fiscal year 2024, investment impairments and credit loss reserves, net totaled a loss of $2.3 million primarily due to a $1.6 million other-than-temporary impairment on one of our non-marketable equity investments and to adjustments to our credit loss reserve for our available-for-sale debt securities. During the first nine months of 2023, investment impairments and credit loss reserves, net totaled a gain of $0.4 million primarily due to a recovery of credit loss reserve on one of our held-to-maturity debt securities.

### Provision for Income Taxes

In the first nine months of fiscal year 2024, we recorded income tax expense of $53.9 million, compared to income tax expense of $26.4 million in the first nine months of fiscal year 2023. The effective tax rates for the first nine months of fiscal years 2024 and 2023 were a provision rate of 13.6% and a provision rate of 19.1%, respectively. The decrease to our effective tax rate for the first nine months of fiscal year 2024 compared to the first nine months of fiscal year 2023 was primarily due to a regional mix of income, changes in valuation allowance, non-deductibility of goodwill impairment, impact of GILTI and R&D credits. The effective tax rates in the first nine months of fiscal years 2024 and 2023 differ from the statutory federal income tax rate of 21% primarily due to a regional mix of income, changes in valuation allowance, non-deductibility of goodwill impairment, impact of GILTI and R&D credits.

During the second quarter of fiscal year 2024, we recorded a valuation allowance against our U.S. deferred tax assets of approximately $52.8 million. We are required to assess whether a valuation allowance should be recorded against our deferred tax assets (“DTAs”) based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether DTAs will be realized are: (1) future reversals of existing taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the tax law; (3) tax planning strategies; and (4) future taxable income exclusive of reversing temporary differences and carryforwards.

After a review of the four sources of taxable income described above and in view of our three-year cumulative loss, we were not able to conclude that it is more likely than not that our DTAs will be realized. As a result, we recorded an additional valuation allowance on our DTAs, with a corresponding charge to our income tax provision, of approximately $52.8 million during the second quarter of fiscal year 2024.

### Liquidity and Capital Resources

Our capital requirements depend on a variety of factors including, but not limited to, the rate of increase or decrease in our existing business base; the success, timing and amount of investment required to bring new products to market; sales growth or decline; potential acquisitions or divestitures; the general economic environment in which we operate; and our ability to generate cash flows from operating activities.

We believe that our cash on hand, cash available from future operations and available borrowing capacity under our Revolving Credit Facility (as defined below) are sufficient to meet liquidity requirements for at least the next 12 months, including funds needed for our material cash requirements. As of October 29, 2023, we had $123.8 million in cash and cash equivalents and $280.0 million of undrawn borrowing capacity on our Revolving Credit Facility, subject to customary conditions precedent, including the accuracy of representations and warranties and the absence of defaults. Over the longer-term, we expect to fund our business using cash flows from operating activities.

Under the Credit Agreement, we are required to maintain a maximum consolidated leverage ratio, a minimum interest expense coverage ratio and, through January 31, 2025, minimum liquidity. In response to adverse market demand conditions, the Company has taken actions to reduce expenses and maintain compliance with its financial covenants, including entering into amendments to the Credit Agreement in February 2023, June 2023 and October 2023 to provide additional financial flexibility with respect to the financial covenants in the Credit Agreement. These amendments resulted in, among other things, an increase in the maximum leverage ratio, a decrease in the minimum interest ratio and also introduced the minimum liquidity covenant that applies through January 31, 2025. See Note 9, Long-Term Debt, to our interim unaudited condensed consolidated financial statements for additional information regarding these covenant requirements. We were in compliance with these covenants as of October 29, 2023. For additional information regarding risks related to our compliance with covenants in the Credit Agreement, see Part II, Item 1A – Risk Factors.

Based on our current projections, management believes we will maintain compliance with our financial covenants and that our existing cash, projected operating cash flows and available borrowing capacity under the Revolving Credit Facility are adequate to meet our operating needs, liabilities and commitments over the next twelve months from the issuance of the accompanying interim unaudited condensed consolidated financial statements. Our ability to comply with the financial covenants in the Credit Agreement (particularly, the maximum consolidated leverage ratio requirement) in future periods may be adversely impacted if market conditions do not improve or the actions we are taking do not sufficiently counter the softer demand environment and reduced revenue levels we are continuing to experience in our end markets.

A meaningful portion of our capital resources, and the liquidity they represent, are held by our foreign subsidiaries. As of October 29, 2023, our foreign subsidiaries held approximately $88.6 million of cash and cash equivalents, compared to $151.4 million at January 29, 2023. Our liquidity may be impacted by fluctuating exchange rates. For additional information on exchange rates, see Item 3 - Quantitative and Qualitative Disclosures About Market Risk.

In connection with the enactment of the Tax Act, all historic and current foreign earnings are taxed in the U.S. Depending on the jurisdiction, these foreign earnings are potentially subject to a withholding tax, if repatriated. As of October 29, 2023, our historical undistributed earnings of our foreign subsidiaries are intended to be permanently reinvested outside of the U.S. With the enactment of the Tax Act, all post-1986 previously unremitted earnings for which no U.S. deferred tax liability had been accrued were subject to U.S. tax. Notwithstanding the U.S. taxation of these amounts, we have determined that none of our current foreign earnings will be permanently reinvested. If we needed to remit all or a portion of our historical undistributed earnings to the U.S. for investment in our domestic operations, any such remittance could result in increased tax liabilities and a higher effective tax rate. Determination of the amount of the unrecognized potential deferred tax liability on these unremitted earnings is not practicable.

We expect our future non-operating uses of cash will be for capital expenditures and debt repayment. We expect to fund these cash requirements through cash flows from operating activities.

#### Credit Agreement

On September 26, 2022 (the “Third Restatement Effective Date”), we entered into a third amended and restated credit agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, swing line lender and letter of credit issuer.

As of October 29, 2023, the borrowing capacity on the revolving credit facility under the Credit Agreement (the "Revolving Credit Facility") is $500.0 million, of which $162.5 million is scheduled to mature on November 7, 2024 and $337.5 million is scheduled to mature on January 12, 2028 (subject to, in certain circumstances, an earlier springing maturity), and the term loans thereunder (the “Term Loans”) are scheduled to mature on January 12, 2028 (subject to, in certain circumstances, an earlier springing maturity).

In the first nine months of fiscal year 2024, we borrowed $70.0 million on our Revolving Credit Facility and repaid $272.4 million on the Term Loans. In the first nine months of fiscal year 2023, we borrowed $10.0 million and repaid $33.0 million on our Revolving Credit Facility. As of October 29, 2023, we had $622.6 million outstanding under the Term Loans and $220.0 million outstanding under the Revolving Credit Facility, which had undrawn borrowing capacity of $280.0 million, subject to customary conditions precedent, including the accuracy of representations and warranties and the absence of defaults.

Up to $40.0 million of the Revolving Credit Facility may be used to obtain letters of credit, up to $25.0 million of the Revolving Credit Facility may be used to obtain swing line loans, and up to $75.0 million of the Revolving Credit Facility may be used to obtain revolving loans and letters of credit in certain currencies other than U.S. Dollars ("Alternative Currencies"). The proceeds of the Revolving Credit Facility may be used by us for capital expenditures, permitted acquisitions, permitted dividends, working capital and general corporate purposes.

As of October 29, 2023, we were in compliance with the financial covenants in our Credit Agreement. The Credit Agreement also contains customary provisions pertaining to events of default. If any event of default occurs, the obligations under the Credit Agreement may be declared due and payable, terminated upon written notice to us and existing letters of credit may be required to be cash collateralized.

See Note 9, Long-Term Debt to our interim unaudited condensed consolidated financial statements for additional information regarding the terms of the Credit Agreement.

In connection with a $100 million reduction in borrowing capacity of the Revolving Credit Facility pursuant to a second amendment to the Credit Agreement entered into on June 6, 2023 and the $250 million payment on the Terms Loans in connection with the Third Amendment, we recognized write-offs of deferred financing costs totaling $3.7 million and $4.4 million for the three and nine months ended October 29, 2023, respectively, which were included in "Interest expense" in the Statements of Operations.

We have entered into interest rate swap agreements to hedge the variability of interest payments on debt outstanding under the Term Loans. See Note 9, Long-Term Debt to our interim unaudited condensed consolidated financial statements for additional information.

#### Convertible Senior Notes due 2027

On October 6, 2022 and October 21, 2022, we issued and sold $300.0 million and $19.5 million, respectively, in aggregate principal amount of the 2027 Notes in a private placement. The 2027 Notes were issued pursuant to an indenture, dated October 12, 2022, by and among us, the subsidiary guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee. The 2027 Notes bear interest at a rate of 1.625% per year, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2023. The 2027 Notes will mature on November 1, 2027, unless earlier converted, redeemed or repurchased. The 2027 Notes were initially issued pursuant to an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act.

We used approximately $72.6 million of the net proceeds from the 2027 Notes to pay for the cost of the Convertible Note Hedge Transactions, after such cost was partially offset by approximately $42.9 million of proceeds to us from the sale of Warrants in connection with the issuance of the 2027 Notes, all as described in Note 9, Long-Term Debt to our interim unaudited condensed consolidated financial statements. The Convertible Note Hedge Transactions and Warrants transactions are indexed to, and potentially settled in, our common stock and the net cost of $29.7 million has been recorded as a reduction to additional paid-in capital in the consolidated statement of shareholders’ equity. We used the remaining net proceeds to fund a portion of the consideration in the Sierra Wireless Acquisition and to pay related fees and expenses. For additional information on the 2027 Notes, Convertible Note Hedge Transactions and the Warrants, see Note 9, Long-Term Debt to our interim unaudited condensed consolidated financial statements.

#### Convertible Senior Notes due 2028

On October 26, 2023, we issued and sold $250.0 million in aggregate principal amount of the 2028 Notes in a private placement. The 2028 Notes were issued pursuant to an indenture, dated October 26, 2023, by and among the Company, the subsidiary guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee. The 2028 Notes bear interest at a rate of 4.00% per year, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2024. The 2028 Notes will mature on November 1, 2028, unless earlier converted, redeemed or repurchased. The 2028 Notes were offered and sold only to eligible purchasers who are both “qualified institutional buyers” within the meaning of Rule 144A under the Securities Act and “accredited investors” within the meaning of Rule 501(a) under the Securities Act, in reliance on Section 4(a)(2) under the Securities Act. For additional information on the 2028 Notes, see Note 9, Long-Term Debt to our interim unaudited condensed consolidated financial statements.

### Expected Uses of Liquidity

#### Capital Expenditures and Research and Development

We incur significant expenditures in order to fund the development, design and manufacture of new products. We intend to continue to focus on those areas that have shown potential for viable and profitable market opportunities, which may require additional investment in equipment and the hiring of additional design and application engineers aimed at developing new products. Certain of these expenditures, particularly the addition of design engineers, do not generate significant payback in the short-term. We plan to finance these expenditures with cash generated by our operations, our existing cash balances and additional draws on our Revolving Credit Facility, as needed. Borrowings under our Revolving Credit Facility are subject to customary conditions precedent, including the accuracy of representations and warranties and the absence of any defaults under the facility.

#### Purchases under our Stock Repurchase Program

We currently have in effect a stock repurchase program that was initially approved by our Board of Directors in March 2008. On March 11, 2021, our Board of Directors approved the expansion of the stock repurchase program by an additional $350.0 million. This program represents one of our principal efforts to return value to our stockholders. Under the program, subject to the terms of the Credit Agreement, we may repurchase our common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. Our repurchases may be made through Rule 10b5-1 and/or Rule 10b-18 or other trading plans, open market purchases, privately negotiated transactions, block purchases or other transactions.

We did not repurchase any shares of our common stock under the program in the first nine months of fiscal year 2024. In the first nine months of fiscal year 2023, we repurchased 762,093 shares under the program for $50.0 million. As of October 29, 2023, the remaining authorization under the program was $209.4 million. To the extent we repurchase any shares of our common stock under the program in the future, we expect to fund such repurchases from cash on hand and borrowings on our Revolving Credit Facility. We have no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.

#### Working Capital

Working capital, defined as total current assets less total current liabilities including the current portion of long-term debt, fluctuates depending on end-market demand and our effective management of certain items such as receivables, inventory and payables. In times of escalating demand, our working capital requirements may increase as we purchase additional manufacturing materials and increase production. In addition, our working capital may be affected by potential acquisitions and transactions involving our debt instruments. Although investments made to fund working capital will reduce our cash balances, these investments are necessary to support business and operating initiatives. Our working capital, excluding cash and cash equivalents, was $209.6 million and $90.4 million as of October 29, 2023 and January 29, 2023, respectively. Our working capital, including cash and cash equivalents, was $333.4 million and $325.9 million as of October 29, 2023 and January 29, 2023, respectively.

Other than as disclosed above with respect to the issuance of the 2028 Notes and borrowings outstanding under the Credit Agreement, there have been no material changes to our cash requirements from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 29, 2023.

### Cash Flows

In summary, our cash flows for each period were as follows:

*(in thousands)*

|  | Nine Months Ended October 29, 2023 | October 30, 2022 |
| --- | ---: | ---: |
| Net cash (used in) provided by operating activities | $(107,839) | $145,510 |
| Net cash used in investing activities | (26,266) | (761) |
| Net cash provided by financing activities | 24,337 | 193,451 |
| Effect of foreign exchange rate changes on cash and cash equivalents | (1,922) | — |
| Net (decrease) increase in cash and cash equivalents | $(111,690) | $338,200 |

#### Operating Activities

Net cash provided by or used in operating activities is driven by net income or loss adjusted for non-cash items and fluctuations in operating assets and liabilities.

Operating cash flows for the first nine months of fiscal year 2024 compared to the first nine months of fiscal year 2023 were unfavorably impacted by transaction and integration costs related to the Sierra Wireless Acquisition, higher annual bonus payments related to increased headcount, and restructuring costs, offset by a 14.7% increase in net sales and a $45.1 million incremental decrease in inventory spend.

#### Investing Activities

Net cash provided by or used in investing activities is primarily driven by capital expenditures, purchases of investments and premiums paid for corporate-owned life insurance, offset by proceeds from the divestiture of the Disposal Group and proceeds from corporate-owned life insurance.

In the first nine months of fiscal year 2023, we received $26.3 million of proceeds from the divestiture of the Disposal Group, net of cash disposed, in May 2022. For additional information on the divestiture, see Note 2, Acquisition and Divestiture, to our interim unaudited condensed consolidated financial statements.

Capital expenditures were $27.5 million for the first nine months of fiscal year 2024, compared to $22.6 million for the first nine months of fiscal year 2023. In the first nine months of fiscal years 2024 and 2023, we made significant investments to update and expand our production capabilities.

In the first nine months of fiscal year 2024, we paid $0.9 million for strategic investments, including investments in companies that are enabling the LoRa® and LoRaWAN® -based ecosystem, compared to $6.7 million of strategic investments in the first nine months of fiscal year 2023.

In the first nine months of fiscal year 2024, we received $2.5 million of proceeds from corporate-owned life insurance, which were used to pay deferred compensation distributions. In the first nine months of fiscal year 2023, we received $5.1 million of proceeds from a corporate-owned life insurance death benefit, which included a $2.5 million gain. All $5.1 million of the proceeds were re-invested into our corporate-owned life insurance policy in order to provide substantive coverage for our deferred compensation liability.

#### Financing Activities

Net cash provided by or used in financing activities is primarily attributable to proceeds from our Revolving Credit Facility and the 2028 Notes, offset by repurchases of outstanding common stock, payments on our Term Loans and Revolving Credit Facility, deferred financing costs and payments related to employee share-based compensation payroll taxes.

In the first nine months of fiscal year 2024, we paid $5.5 million for employee share-based compensation payroll taxes. In the first nine months of fiscal year 2023, we paid $13.8 million for employee share-based compensation payroll taxes and received proceeds of $0.6 million from the exercise of stock options. We do not directly control the timing of the exercise of stock options. Such exercises are independent decisions made by grantees and are influenced most directly by the stock price and the expiration dates of stock option awards. Such proceeds are difficult to forecast, resulting from several factors that are outside our control. We believe that such proceeds will remain a nominal source of cash in the future.

### Critical Accounting Estimates

Our critical accounting estimates are disclosed in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of our Annual Report on Form 10-K for the fiscal year ended January 29, 2023. There have been no significant changes to our policies during the nine months ended October 29, 2023.

### Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 1, Organization and Basis of Presentation to our interim unaudited condensed consolidated financial statements.

## Market risk

As filed, 7,682 characters.

We are subject to a variety of market risks, including commodity risk and the risks related to foreign currency, interest rates and market performance that are discussed in Item 7A of our Annual Report on Form 10-K for the fiscal year ended January 29, 2023. Many of the factors that can have an impact on our market risk are external to us, and so we are unable to fully predict them.

### Market Conditions

A deterioration of global economic conditions has impacted, and may continue to impact, demand for our products, resulting in changes in customer order patterns, including order cancellations, and changes in the level of inventory held by vendors.

### Commodity Risk

We are subject to risk from fluctuating market prices of certain commodity raw materials, particularly gold, that are incorporated into our end products or used by our suppliers to process our end products. Increased commodity prices are passed on to us in the form of higher prices from our suppliers, either in the form of general price increases or a commodity surcharge. Although we generally deal with our suppliers on a purchase order basis rather than on a long-term contract basis, we generally attempt to obtain firm pricing for volumes consistent with planned production. Our gross margins may decline if we are not able to increase selling prices of our products or obtain manufacturing efficiencies to offset the increased cost. We do not enter into formal hedging arrangements to mitigate against commodity risk.

### Foreign Currency Risk

Our foreign operations expose us to the risk of fluctuations in foreign currency exchange rates against our functional currencies and we may economically hedge this risk with foreign currency contracts (such as currency forward contracts). Gains or losses on these balances are generally offset by corresponding losses or gains on the related hedging instruments. As of October 29, 2023, our largest foreign currency exposures were from the Canadian Dollar, Swiss Franc and Great British Pound.

We considered the historical trends in foreign currency exchange rates and determined that it is reasonably possible that adverse changes in foreign exchange rates of 10% for all currencies could be experienced in the near-term. These reasonably possible adverse changes were applied to our total monetary assets and liabilities denominated in currencies other than our functional currency as of the end of our third quarter of fiscal year 2024. The adverse impact these changes would have had (after taking into account balance sheet hedges only) on our income before taxes is $1.7 million for the quarter ended October 29, 2023.

### Interest rate and credit risk

We are subject to interest rate risk in connection with the portion of the outstanding debt under our Credit Agreement that bears interest at a variable rate as of October 29, 2023.

In the first quarter of fiscal year 2024, we entered into an interest rate swap agreement with a 2.75 year term to hedge the variability of interest payments on $150.0 million of debt outstanding on the Term Loans at a Term SOFR rate of 3.58%, plus a variable margin and spread based on our consolidated leverage ratio.

In the fourth quarter of fiscal year 2023, we entered into an interest rate swap agreement with a 5 year term to hedge the variability of interest payments on $450.0 million of debt outstanding on the Term Loans at a Term SOFR rate of 3.44%, plus a variable margin and spread based on our consolidated leverage ratio.

In the first quarter of fiscal year 2021, we entered into an interest rate swap agreement with a 3 year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under the Revolving Credit Facility at a LIBOR-referenced rate of 0.73%, plus a variable margin and spread based on our consolidated leverage ratio. This interest rate swap agreement matured during the first quarter of 2024.

Based upon our $243.0 million of unhedged floating-rate outstanding indebtedness as of October 29, 2023, the adverse impact a one percentage point increase in Term SOFR would have on our interest expense is $2.4 million.

Interest rates also affect our return on excess cash and investments. As of October 29, 2023, we had $123.8 million of cash and cash equivalents. A majority of our cash and cash equivalents generate interest income based on prevailing interest rates. Interest income, net of reserves, generated by our investments and cash and cash equivalents was $0.6 million in the third quarter of fiscal year 2024. A significant change in interest rates would impact the amount of interest income generated from our cash and investments. It would also impact the market value of our investments.

Our investments are primarily subject to credit risk. Our investment guidelines prescribe credit quality, permissible investments, diversification, and duration restrictions. These restrictions are intended to limit risk by restricting our investments to high quality debt instruments with relatively short-term durations. Our investment strategy limits investment of new funds and maturing securities to U.S. Treasury, Federal agency securities, high quality money market funds and time deposits with our principal commercial banks. Outside of these investment guidelines, we also invest in a limited amount of debt securities in privately held companies that we view as strategic to our business. For example, many of these investments are in companies that are enabling the LoRa®- and LoRaWAN® -based ecosystem.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems. Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. We maintain cash held in deposit at financial institutions in the U.S. These deposits are insured by the FDIC in an amount up to $250,000 for any depositor. To the extent we hold cash deposits in amounts that exceed the FDIC insurance limitation, we may incur a loss in the event of a failure of any of the financial institutions where we maintain deposits. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. or any applicable foreign government in the future or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a future failure or liquidity crisis. In addition, if any of our partners or parties with whom we conduct business are unable to access funds due to the status of their financial institution, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected. Management believes we are not exposed to significant risk due to the financial position of the depository institution, but will continue to monitor regularly and adjust, if needed, to mitigate risk. We have established guidelines regarding diversification of our investments and their maturities, which are designed to maintain principal and maximize liquidity. To date, we have not experienced any losses associated with this credit risk and continue to believe that this exposure is not significant.

## Controls and procedures

As filed, 1,336 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of October 29, 2023.

### Changes in Internal Controls

There were no changes to our internal control over financial reporting that occurred during the fiscal quarter ended October 29, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 5,696 characters.

Please carefully consider and evaluate all of the information in this Quarterly Report and the risk factors set forth below and in our Annual Report on Form 10-K for the fiscal year ended January 29, 2023. If any of these risks actually occur, our business could be materially harmed. If our business is harmed, the trading price of our common stock could decline.

Other than as set forth below, the risk factors associated with our business have not materially changed as compared to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended January 29, 2023.

***Restrictive and financial covenants in the Credit Agreement governing our credit facilities may restrict our ability to pursue our business strategies, and any violation of one or more of these covenants could have a material adverse effect on our financial condition and results of operations.***

The Credit Agreement (as defined above) contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests. The Credit Agreement includes covenants restricting, among other things, our and our subsidiaries’ ability to: incur or guarantee additional debt or issue certain preferred stock; pay dividends or make distributions on our capital stock or redeem, repurchase or retire our capital stock; make certain investments and acquisitions; create liens on our or our subsidiaries’ assets; enter into transactions with affiliates; merge or consolidate --with another person or sell or otherwise dispose of substantially all of our assets; make certain payments in respect of other material indebtedness; and alter the business that we conduct.

In addition, under the Credit Agreement, we are required to maintain a maximum consolidated leverage ratio, a minimum interest expense coverage ratio and minimum liquidity. Due to the impact of macroeconomic conditions and a softer demand environment on our business and results of operations, we entered into amendments to the Credit Agreement in February 2023, June 2023 and October 2023 to provide additional financial flexibility with respect to the financial covenants in the Credit Agreement. These amendments resulted in, among other things, an increase in the maximum leverage ratio, a decrease in the minimum interest ratio and also introduced the minimum liquidity covenant that applies through January 31, 2025. We were in compliance with these covenants as of October 29, 2023.

In response to adverse market demand conditions, management has taken actions to reduce expenses and maintain compliance with the financial covenants. Failure to meet the covenant requirements in the Credit Agreement would constitute an event of default under the Credit Agreement and there is no certainty we would be able to obtain waivers or amendments with the requisite lenders party thereto in order to maintain compliance. Other covenants in the Credit Agreement may also limit or restrict our ability to take certain actions to address our compliance with certain of the financial covenants in the Credit Agreement. Our ability to meet such financial covenants can also be affected by events beyond our control, and we cannot assure you that we will be able to meet such financial covenants.

If an event of default occurs and we are unable to obtain necessary waivers or amendments, the requisite lenders may elect to declare all outstanding borrowings, together with accrued and unpaid interest and other amounts payable thereunder, to be immediately due and payable. Further, if an event of default occurs, the lenders will have the right to proceed against the collateral granted to them to secure that debt. If the debt under the Credit Agreement were to be accelerated, our assets may not be sufficient to repay in full that debt that may become due as a result of that acceleration. We could seek replacement financing at prevailing market rates or raise additional capital by issuing equity or debt securities; however, this may not be on terms favorable to us, or available at all.

We are required to assess our ability to continue as a going concern as part of our preparation of financial statements at each quarter-end. This assessment includes, among other things, our ability to comply with the financial covenants and other requirements under the Credit Agreement. If in future periods we are not able to demonstrate that we will be in compliance with the financial covenant requirements in the Credit Agreement over the next twelve months from the issuance of the financial statements and would not have sufficient funds or financing plans to satisfy the obligations thereunder if an event of default occurs, management may be required to conclude that the uncertainty surrounding compliance with these financial covenants raises substantial doubt about our ability to continue as a going concern. Any such determination that we may be unable to continue as a going concern, or the perception that we may be unable to do so, may materially harm our business and reputation

and may make it more difficult for us to obtain financing for the continuation of our operations, which, in turn, may adversely impact our financial condition, results of operations and cash flows.

If, in the event of such a determination, we are not successful in raising additional capital or refinancing our existing debt or securing new financing, we may be required to reduce the scope of our operations, liquidate some of our assets where possible, and/or suspend or curtain planned programs among other possible courses of action.

Filed Dec 6, 2023.
Source: SEC EDGAR, the filing index for accession 0000088941-23-000029. Last ingested by Listed: Nov 6, 2026, 12:49 ET. No prices; not investment advice.