# Cirrus Logic, Inc.: Form 10-Q for the period ended Jun 26, 2021

- Company: [Cirrus Logic, Inc.](/companies/crus.md) (CIK 772406)
- Form: 10-Q
- Filed: 2021-07-28
- Accepted by EDGAR: Jul 28, 2021, 16:01 ET
- Period: 2021-06-26
- Accession: 0000772406-21-000030
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/772406/000077240621000030/crus-20210626.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/772406/000077240621000030/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-06-26.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-03-28 to 2021-06-26 | $277.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-03-28 to 2021-06-26 | $137.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2021-03-28 to 2021-06-26 | $139.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2021-03-28 to 2021-06-26 | $85.7m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2021-03-28 to 2021-06-26 | $35.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-03-28 to 2021-06-26 | $19.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2021-03-28 to 2021-06-26 | $2.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-03-28 to 2021-06-26 | $17.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-03-28 to 2021-06-26 | $0.29 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-03-28 to 2021-06-26 | $0.30 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-03-28 to 2021-06-26 | 59,513,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2021-03-28 to 2021-06-26 | −$26.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2021-03-28 to 2021-06-26 | $10.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2021-03-28 to 2021-06-26 | $12.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2021-06-26 | $385.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-06-26 | $839.3m | us-gaap:AssetsCurrent |
| Total assets | at 2021-06-26 | $1.81bn | us-gaap:Assets |
| Current liabilities | at 2021-06-26 | $186.5m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2021-06-26 | $1.41bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 20,569 characters.

The following discussion should be read along with the unaudited consolidated condensed financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended March 27, 2021, contained in our fiscal year 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on May 21, 2021. We maintain a website at investor.cirrus.com, which makes available free of charge our most recent annual report and all other filings we have made with the Commission.

This quarterly report on Form 10-Q including Management’s Discussion and Analysis of Financial Condition and Results of Operations and certain information incorporated herein by reference contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on expectations, estimates, forecasts and projections and the beliefs and assumptions of our management as of the filing of this Form 10-Q. In some cases, forward-looking statements are identified by words such as “expect,” “anticipate,” “target,” “project,” “believe,” “goals,” “estimates,” “intend,” and variations of these types of words and similar expressions which are intended to identify these forward-looking statements. In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements and readers should not place undue reliance on such statements. We undertake no obligation, and expressly disclaim any duty, to revise or update publicly any forward-looking statement for any reason.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see “*Item 1A – Risk Factors”* in our 2021 Annual Report on Form 10-K filed with the Commission on May 21, 2021, and in Part II, Item 1A “*Risk Factors”* within this quarterly report on Form 10-Q. Readers should carefully review these risk factors, as well as those identified in other documents filed by us with the Commission.

### Overview

Cirrus Logic, Inc. (“Cirrus Logic,” “We,” “Us,” “Our,” or the “Company”) is a leader in low-power, high-precision mixed-signal processing solutions that create innovative user experiences for the world’s top mobile and consumer applications.

The Company recently announced the acquisition of Lion Semiconductor, a leading provider of proprietary fast-charging and power ICs, for $335 million in cash. We entered the transaction with the expectation that the Acquisition would accelerate growth of our high-performance mixed-signal product line in the coming years. See additional information in Note 16 - Subsequent Events of the Notes to the Consolidated Condensed Financial Statements and Item 1A. Risk Factors below.

Cirrus Logic has been experiencing demand significantly in excess of available capacity. While our teams have focused on working with our suppliers to meet as much demand as possible in the near term, we have also entered into a long-term Capacity Reservation and Wafer Supply Commitment Agreement with GlobalFoundries, a foundry partner for many of our strategic products. This will expand our ability to address unprecedented market demand and provide customers with much-needed supply assurance. Given our anticipated strong cash generation, we believe this agreement is a good use of our financial resources: it secures supplier commitments to capacity expansion in support of our sales growth, alleviates some of the supply uncertainty currently affecting the Company and its customers, and ensures supplier investment in additional technologies for future products. We have agreed to $225 million in payments to GlobalFoundries in the short-term under this agreement. See additional information in Note 16 - Subsequent Events of the Notes to the Consolidated Condensed Financial Statements and Item 1A. Risk Factors below.

### Impact of COVID-19

The Company remains committed to the safety and well-being of our employees, their families and our communities across the globe, while maintaining business continuity and continuing to provide outstanding support to our customers. At this time, the majority of our employees worldwide continue to work remotely and remain subject to travel restrictions, due to COVID-19. Despite these challenges, all teams across the organization remain highly productive and we currently anticipate that the Company will be able to continue to maintain a similar level of productivity for the foreseeable future. Although we have not experienced a significant reduction in our overall productivity through fiscal year 2022 to date, any increased or additional disruptions to our business operations due to these restrictions would likely impact our ability to continue to maintain current levels of productivity.

The COVID-19 pandemic is likely to continue to cause volatility and uncertainty in customer demand, worldwide economies and financial markets for some period of time. To date, any negative impact of COVID-19 on the overall demand for our products, cash flow from operations, need for capital expenditures, and our liquidity position has been limited, although we are addressing capacity constraints in our supply chain as described above. The Company has not accessed its Credit

Facility or raised capital in the public or private markets. Given our strong net cash position and available borrowings under our $300 million Revolving Credit Facility, we believe the Company has sufficient liquidity to satisfy our cash needs for the foreseeable future.

### Critical Accounting Policies

Our discussion and analysis of the Company’s financial condition and results of operations are based upon the unaudited consolidated condensed financial statements included in this report, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts. We evaluate the estimates on an on-going basis. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

During the three months ended June 26, 2021, there have been no significant changes to the information provided under the heading “*Critical Accounting Policies”* included in our fiscal year 2021 Annual Report on Form 10-K for the fiscal year ended March 27, 2021.

### Recently Issued Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, refer to Note 2 of the Notes to the Consolidated Condensed Financial Statements.

### Results of Operations

Our fiscal year is the 52- or 53-week period ending on the last Saturday in March. Fiscal years 2022 and 2021 are both 52-week fiscal years.

The following table summarizes the results of our operations for the first three months of fiscal years 2022 and 2021, respectively, as a percentage of net sales. All percentage amounts were calculated using the underlying data in thousands, unaudited:

|  | Three Months Ended June 26, 2021 | June 27, 2020 |
| --- | ---: | ---: |
| Net sales | 100% | 100% |
| Gross margin | 50% | 53% |
| Research and development | 31% | 33% |
| Selling, general and administrative | 12% | 12% |
| Restructuring costs | —% | —% |
| Income from operations | 7% | 8% |
| Interest income | —% | 1% |
| Interest expense | —% | —% |
| Other income (expense) | —% | —% |
| Income before income taxes | 7% | 9% |
| Provision for income taxes | 1% | 1% |
| Net income | 6% | 8% |

#### Net Sales

Net sales for the first quarter of fiscal year 2022 increased $34.7 million, or 14 percent, to $277.3 million from $242.6 million in the first quarter of fiscal year 2021. Net sales from our audio products increased $10.9 million, primarily driven by higher smartphone volumes in Android and an uptick in sales in laptops, which was offset somewhat by headwinds in wired headset codecs. High-performance mixed-signal product sales increased $23.8 million for the quarter versus the first quarter of fiscal year 2021, primarily due to content gains in smartphones.

International sales, including sales to U.S.-based end customers that manufacture products through contract manufacturers or plants located overseas, were approximately 98 percent of net sales for each of the first quarters of fiscal years 2022 and 2021. Our sales are denominated primarily in U.S. dollars.

Since the components we produce are largely proprietary, we consider our end customer to be the entity specifying the use of our component in their design. These end customers may purchase our products directly from us, through distributors or third-party manufacturers contracted to produce their designs. For the first quarter of fiscal years 2022 and 2021, our ten largest end customers represented approximately 90 percent and 91 percent of our net sales, respectively.

We had one end customer, Apple Inc., that purchased through multiple contract manufacturers and represented approximately 72 percent and 83 percent, of the Company’s total net sales for the first quarters of fiscal years 2022 and 2021, respectively.

No other end customer or distributor represented more than 10 percent of net sales for the three months ended June 26, 2021 or June 27, 2020.

For more information, please see Part II—Item 1A—Risk Factors— “We depend on a limited number of customers and distributors for a substantial portion of our sales, and the loss of, or a significant reduction in orders from, or pricing on products sold to, any key customer or distributor could significantly reduce our sales and our profitability.”

#### Gross Margin

Gross margin was 50.5 percent in the first quarter of fiscal year 2022, down from 52.6 percent in the first quarter of fiscal year 2021. The decrease was primarily driven by typical pricing reductions in excess of cost savings on certain components, a shift in product mix, and to a lesser extent, higher supply chain costs. We believe continued supply constraints and increased costs beginning in the fourth quarter of fiscal year 2022 will likely take us slightly below our long-term gross margin model of 50 percent in fiscal year 2023.

#### Research and Development Expense

Research and development expense for the first quarter of fiscal year 2022 was $85.7 million, an increase of $7.0 million, from $78.7 million in the first quarter of fiscal year 2021. The primary drivers were increased employee-related expenses, variable compensation and product development costs.

#### Selling, General and Administrative Expense

Selling, general and administrative expense for the first quarter of fiscal year 2022 was $35.1 million, an increase of $5.4 million, from $29.7 million in the first quarter of fiscal year 2021 primarily due to increases in employee-related expenses and variable compensation costs.

#### Restructuring Costs

During the fourth quarter of fiscal year 2020, the Company approved the MEMS Restructuring, including discontinuing efforts relating to the MEMS microphone product line. The Company recorded charges of approximately $0.4 million in the first quarter of fiscal year 2021, which included equipment disposal costs and other nonrecurring costs. See Note 10 - Restructuring Costs for additional details.

#### Interest Income

The Company reported interest income of $1.0 million and $1.8 million, for the three months ended June 26, 2021 and June 27, 2020, respectively. Interest income decreased in the current period due to lower yields on average cash, cash equivalent and marketable securities balances, compared to the prior period.

#### Interest Expense

The Company reported interest expense of $0.3 million and $0.3 million for the three months ended June 26, 2021 and June 27, 2020, respectively. Interest expense consists primarily of commitment fees associated with the Company's Credit Facility (see Note 8).

#### Other Income (Expense)

For the three months ended June 26, 2021 and June 27, 2020, the Company reported $0.2 million in other expense and $0.1 million in other income, respectively, primarily related to remeasurement on foreign currency denominated monetary assets and liabilities.

#### Income Taxes

Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items and any applicable credits.

The following table presents the provision for income taxes (in thousands) and the effective tax rates:

|  | Three Months Ended June 26, 2021 | June 27, 2020 |
| --- | ---: | ---: |
| Income before income taxes | $19,622 | $20,362 |
| Provision for income taxes | $2,413 | $2,153 |
| Effective tax rate | 12.3% | 10.6% |

Our income tax expense for the first quarter of fiscal year 2022 was $2.4 million compared to $2.2 million for the first quarter of fiscal year 2021, resulting in effective tax rates of 12.3% and 10.6% for the first quarters of fiscal years 2022 and 2021, respectively. Our effective tax rate for the first quarter of fiscal year 2022 was lower than the federal statutory rate primarily due to the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate. Our effective tax rate for the first quarter of fiscal year 2021 was lower than the federal statutory rate primarily due to the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate and excess tax benefits from stock-based compensation.

### Liquidity and Capital Resources

We require cash to fund our operating expenses and working capital requirements, including outlays for inventory, capital expenditures, share repurchases, and strategic acquisitions. Our principal sources of liquidity are cash on hand, cash generated from operations, cash generated from the sale and maturity of marketable securities, and available borrowings under our $300 million senior secured revolving credit facility.

Cash used in or generated by operating activities is net income adjusted for certain non-cash items and changes in working capital. Cash used in operations was $26.8 million for the first three months of fiscal year 2022 versus $0.5 million generated for the corresponding period of fiscal year 2021. The cash flow used in operations during the first three months of fiscal year 2022 was related to the cash components of our net income and a $61.7 million unfavorable change in working capital, primarily as a result of increases in accounts receivables and inventories, as well as decreases in accounts payable. The cash flow from operations during the corresponding period of fiscal year 2021 was related to the cash components of our net income and a $43.9 million unfavorable change in working capital, primarily as a result of increases in inventories, partially offset by decreases in accounts receivable.

Net cash used in investing activities was $16.7 million during the first three months of fiscal year 2022 versus $9.2 million during the first three months of fiscal year 2021. The cash used in investing activities in the first three months of fiscal year 2022 is related to net purchases of marketable securities of $4.8 million and capital expenditures and technology investments of $11.9 million. The cash used in investing activities in the corresponding period in fiscal year 2021 was related to net purchases of marketable securities of $7.1 million and capital expenditures and technology investments of $2.1 million.

Net cash used in financing activities was $13.5 million during the first three months of fiscal year 2022 and was primarily associated with stock repurchases for the period of $12.5 million. The cash generated by financing activities during the first three months of fiscal year 2021 of $2.5 million was primarily associated with the issuance of common stock under Company stock-based compensation plans.

Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, the Lion Semiconductor acquisition (discussed further in Note 16 - Subsequent Events of the Notes to the Consolidated Condensed Financial Statements and Item 1A. Risk Factors below) and potential future acquisitions of companies or technologies, commitments under the Capacity Reservation and Wafer Supply Commitment Agreement with GlobalFoundries (discussed further in Note 16 - Subsequent Events of the Notes to the Consolidated Condensed Financial Statements and Item 1A. Risk Factors below), and the expansion of our sales and marketing activities. We believe our expected future cash earnings, existing cash, cash equivalents, investment balances, and available borrowings under our Revolving Credit Facility will be sufficient to meet our capital requirements through at least the next 12 months, although we could be required, or could elect, to seek additional funding prior to that time.

#### Revolving Credit Facility

On July 12, 2016, Cirrus Logic entered into an amended and restated credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto, for the purpose of refinancing an existing credit facility and providing ongoing working capital. The Credit Agreement provides for a $300 million senior secured revolving credit facility (the “Credit Facility”). The Credit Facility is required to be guaranteed by all of Cirrus Logic’s material domestic subsidiaries (the “Subsidiary Guarantors”). The Credit Facility is secured by substantially all of the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.

Borrowings under the Credit Facility may, at our election, bear interest at either (a) a base rate plus the applicable margin (“Base Rate Loans”) or (b) a LIBOR rate plus the applicable margin (“LIBOR Rate Loans”). The applicable margin ranges from 0% to 0.50% per annum for Base Rate Loans and 1.25% to 2.00% per annum for LIBOR Rate Loans based on the Leverage Ratio (as defined below). A commitment fee accrues at a rate per annum ranging from 0.20% to 0.30% (based on the Leverage Ratio) on the average daily unused portion of the commitment of the lenders. The Credit Agreement contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness to consolidated EBITDA for the prior four fiscal quarters must not be greater than 3.00 to 1.00 (the “Leverage Ratio”) and (b) the ratio of consolidated EBITDA for the prior four consecutive fiscal quarters to consolidated fixed charges (including amounts paid in cash for consolidated interest expenses, capital expenditures, scheduled principal payments of indebtedness, and income taxes) for the prior four consecutive fiscal quarters must not be less than 1.25 to 1.00 as of the end of each fiscal quarter. The Credit Agreement also contains negative covenants limiting the Company’s or any Subsidiary’s ability to, among other things, incur debt, grant liens, make investments, effect certain fundamental changes, make certain asset dispositions, and make certain restricted payments.

As of June 26, 2021, the Company had no amounts outstanding under the Credit Facility and was in compliance with all covenants under the Credit Agreement.

See Note 16 - Subsequent Events of the Notes to the Consolidated Condensed Financial Statements for details on the Second Amended Credit Agreement related to the Revolving Credit Facility.

## Market risk

As filed, 1,039 characters.

We are exposed to market risks associated with interest rates on our debt securities, currency movements on non-functional currency assets and liabilities, and the effect of market factors on the value of our marketable securities. We assess these risks on a regular basis and have established policies that are designed to protect against the adverse effects of these and other potential exposures. We use forward contracts to manage exposure to foreign currency exchange risk attributable to certain non-U.S. dollar balance sheet exposures. Gains and losses from these foreign currency forward contracts are recognized currently in earnings along with the gains and losses resulting from remeasuring the underlying exposures. For further description of our market risks, see “*Part II – Item 7A – Quantitative and Qualitative Disclosures about Market Risk”* in our fiscal year 2021 Annual Report on Form 10-K filed with the Commission on May 21, 2021. For related financial statement impact see Note 5 - Derivative Financial Instruments.

## Controls and procedures

As filed, 1,420 characters.

#### Evaluation of disclosure controls and procedures

As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our chief executive officer (CEO) and chief financial officer (CFO), the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the

Commission rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based upon the evaluation, our management, including our CEO and CFO, has concluded that our disclosure controls and procedures were effective as of June 26, 2021.

#### Changes in control over financial reporting

There has been no change in the Company’s internal control over financial reporting during the quarter ended June 26, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 9,685 characters.

In evaluating all forward-looking statements, you should specifically consider risk factors that may cause actual results to vary from those contained in the forward-looking statements. Various risk factors associated with our business are included in our Annual Report on Form 10-K for the year ended March 27, 2021, as filed with the Commission on May 21, 2021, and available at www.sec.gov. Other than as set forth below, there have been no material changes to those risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March 27, 2021.

***We depend on a limited number of customers and distributors for a substantial portion of our sales, and the loss of, or a significant reduction in orders from, or pricing on products sold to, any key customer or distributor could significantly reduce our sales and our profitability.***

While we generate sales from a broad base of customers worldwide, the loss of any of our key customers, or a significant reduction in sales or selling prices to any key customer, or reductions in selling prices made to retain key customer relationships, would significantly reduce our revenue, margins and earnings and adversely affect our business. For the first quarter of fiscal years 2022 and 2021, our ten largest end customers represented approximately 90 percent and 91 percent of our net sales, respectively. We had one end customer, Apple Inc., that purchased through multiple contract manufacturers and represented approximately 72 percent and 83 percent of the Company’s total net sales for the first quarter of fiscal years 2022 and 2021, respectively. No other end customer or distributor represented more than 10 percent of net sales for the three months ended June 26, 2021, or June 27, 2020.

We may not be able to maintain or increase sales to certain of our key customers for a variety of reasons, including the following:

- most of our customers can stop incorporating our products into their own products with limited notice to us and suffer little or no penalty;
- our agreements with our customers typically do not require them to purchase a minimum quantity of our products;
- many of our customers have pre-existing or concurrent relationships with our current or potential competitors that may affect the customers’ decisions to purchase our products;
- many of our customers have sufficient resources to internally develop technology solutions and semiconductor components that could replace the products that we currently supply in our customers' end products;
- our customers face intense competition from other manufacturers that do not use our products; and
- our customers regularly evaluate alternative sources of supply in order to diversify their supplier base, which increases their negotiating leverage with us and their ability to obtain components from alternative sources.

In addition, our dependence on a limited number of key customers may make it easier for key customers to pressure us to reduce the prices of the products we sell to them. We have experienced pricing pressure from certain key customers, and we expect that the average selling prices for certain of our products will decline, reducing our revenue, our margins, and our earnings.

Our key customer relationships often require us to develop new products that may involve significant technological challenges. Our customers frequently place considerable pressure on us to meet their tight development schedules. In addition, we may from time to time enter into customer agreements providing for exclusivity periods during which we may only sell specified products or technologies to that customer. Even without exclusivity periods, the products that we develop are often specific to our customer's system architecture and frequently cannot be sold to other customers. Accordingly, we may have to devote a substantial amount of resources to strategic relationships, which could detract from or delay our completion of other important development projects or the development of next generation products and technologies.

Moreover, our reliance on certain customers may continue to increase, which could heighten the risks associated with having key customers, including making us more vulnerable to significant reductions in revenue, margins and earnings, pricing pressure, and other adverse effects on our business.

***We have a long-term capacity reservation and wafer supply agreement with GlobalFoundries, which includes obligations to purchase wafers from GlobalFoundries through calendar year 2026. If our requirements are different from the number of wafers that we have committed to purchase from GlobalFoundries, or if GlobalFoundries is not able to satisfy our manufacturing requirements, our results of operations and financial condition could be adversely impacted.***

Due to recent industry-wide capacity constraints, and in an effort to alleviate some of our future expected supply constraints, the Company entered into a Capacity Reservation and Wafer Supply Commitment Agreement with GlobalFoundries on July 28, 2021. In exchange for GlobalFoundries’ capacity commitment, the Company agreed to pay a $50 million non-refundable capacity reservation fee. In addition, the Company agreed to pre-pay GlobalFoundries $175 million for future wafer purchases, which will be credited back to the Company as a portion of the price of wafers purchased beginning in the third quarter of calendar year 2023. Pursuant to the agreement, the Company expects to purchase at least $1.6 billion in wafers for calendar years 2022 through 2026. The agreement further sets wafer pricing for products purchased pursuant to the agreement through 2026. Although we believe this agreement is a good use of our financial resources and secures capacity for certain products through 2026, the agreement with GlobalFoundries involves certain risks that may result in excess inventory, place us at a competitive disadvantage, have a negative impact on our liquidity, or materially and adversely affect our results of operations and financial condition.

Pursuant to the agreement, the Company is required to purchase, and GlobalFoundries is required to supply, a certain number of wafers on a quarterly basis. If our actual wafer requirements are less than the number of wafers required to meet the applicable wafer purchase requirements, we could have excess inventory or higher inventory unit costs, both of which may adversely impact our gross margin and our results of operations.

Additionally, the agreement sets forth pricing for wafer purchases pursuant to the agreement through 2026. If market conditions change and wafer prices in the market decrease significantly below what is contemplated in the agreement, the agreement may put us at a competitive disadvantage relative to our competitors.

Even with a long-term supply agreement, we are still subject to risks that GlobalFoundries will be unable to meet their supply commitments, achieve anticipated manufacturing yields, manufacture our products on a timely basis, or provide additional wafer capacity beyond its current contractual commitments sufficient to meet our customers' product demands. If so, we may experience delays in product launches or supply shortages for certain products, which could cause an unanticipated decline in our sales and damage our existing customer relationships and our ability to establish new customer relationships. In addition, if GlobalFoundries experiences financial difficulties or goes into bankruptcy, it could be difficult or impossible, or may require substantial time and expense, for us to recover any or all of our prepayments made as part of the agreement.

Any of the foregoing could materially harm our liquidity, financial condition and results of operations and could put us at a disadvantage relative to our competitors.

***Our acquisition of Lion Semiconductor involves several risks, including, among others, integration risks, risks associated with our ability to retain key employees following the acquisition, and risks associated with our ability to achieve anticipated revenue goals. If the Company fails to manage these risks effectively, the financial and business results of the Company could be adversely affected.***

On July 20, 2021, we completed the acquisition of Lion Semiconductor, Inc. In connection with the transaction, Lion Semiconductor became a wholly-owned subsidiary of the Company. We entered the transaction with the expectation that the acquisition would accelerate growth of our high-performance mixed-signal product line and contribute approximately $60 million in revenue before the end of fiscal year 2022, with strong growth potential in the coming years.

The benefits we expect to realize from the acquisition will depend, in part, on our ability to integrate the businesses successfully and efficiently, and our ability to retain, motivate and support key management, engineering, technical and other personnel. These expected benefits may be further impacted by supply constraints, customer order cancellations or the failure of customers to place orders consistent with current forecasts for Lion Semiconductor’s fast-charging IC products. In addition, a significant portion of our revenue expectations for strong revenue in the coming years depends on products currently under development, which are subject to product development risks associated with the successful completion, testing, and commercial launch of these new products.

If we fail to manage these risks effectively, the financial and business results of the Company could be adversely affected.

Filed Jul 28, 2021.
Source: SEC EDGAR, the filing index for accession 0000772406-21-000030. Last ingested by Listed: Nov 4, 2026, 16:32 ET. No prices; not investment advice.