# Cirrus Logic, Inc.: Form 10-Q for the period ended Dec 24, 2022

- Company: [Cirrus Logic, Inc.](/companies/crus.md) (CIK 772406)
- Form: 10-Q
- Filed: 2023-02-02
- Accepted by EDGAR: Feb 2, 2023, 21:03 ET
- Period: 2022-12-24
- Accession: 0000772406-23-000006
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/772406/000077240623000006/crus-20221224.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/772406/000077240623000006/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-12-24.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-09-25 to 2022-12-24 | $590.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-03-27 to 2022-12-24 | $1.52bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-09-25 to 2022-12-24 | $293.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-03-27 to 2022-12-24 | $754.2m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-09-25 to 2022-12-24 | $296.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-03-27 to 2022-12-24 | $770.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-09-25 to 2022-12-24 | $118.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-03-27 to 2022-12-24 | $343.3m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-09-25 to 2022-12-24 | $37.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-03-27 to 2022-12-24 | $115.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-09-25 to 2022-12-24 | $141.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-03-27 to 2022-12-24 | $311.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-09-25 to 2022-12-24 | $37.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-03-27 to 2022-12-24 | $83.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-09-25 to 2022-12-24 | $103.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-03-27 to 2022-12-24 | $230.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-09-25 to 2022-12-24 | $1.83 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-03-27 to 2022-12-24 | $4.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-09-25 to 2022-12-24 | $1.87 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-03-27 to 2022-12-24 | $4.13 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-09-25 to 2022-12-24 | 56,583,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-03-27 to 2022-12-24 | 57,280,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-03-27 to 2022-12-24 | $291.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-03-27 to 2022-12-24 | $23.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2022-03-27 to 2022-12-24 | $156.4m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-12-24 | $434.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-12-24 | $1.01bn | us-gaap:AssetsCurrent |
| Total assets | at 2022-12-24 | $2.17bn | us-gaap:Assets |
| Current liabilities | at 2022-12-24 | $228.5m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2022-12-24 | $1.72bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 23,558 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 26, 2022, contained in our fiscal year 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on May 20, 2022. 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.

### Special Note Regarding Forward-Looking Statements

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, (the "Exchange Act"). 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 2022 Annual Report on Form 10-K filed with the Commission on May 20, 2022, 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.

We remain committed to our three-pronged strategy for growing our business: first, maintaining our leadership position in smartphone audio; second, broadening sales of audio components in key profitable applications beyond smartphones; and third, applying our mixed-signal engineering expertise to develop solutions in new, adjacent high-performance mixed-signal applications and markets.

In fiscal year 2022, we entered into a long-term Capacity Reservation and Wafer Supply Commitment Agreement with GlobalFoundries, to expand our ability to address unprecedented market demand and provide customers with much-needed supply assurance. We continue to prioritize supply towards key customers seeking to maximize total smartphone unit volumes, resulting in varied content across models and devices. We are working with our partners to secure additional capacity and seeking to expand foundry optionality where possible. See additional information in Note 12 - Commitments and Contingencies of the Notes to the Consolidated Condensed Financial Statements.

### Impact of COVID-19

We continue to expect that COVID-19 will have an adverse effect on our business, financial condition, and results of operations and, with the pandemic ongoing, we are unable to predict the full extent and nature of these impacts at this time. The COVID-19 pandemic has and will likely continue to heighten or exacerbate many of the other risks described in the risk factors listed in our Form 10-K for the year ended March 26, 2022, and in our other filings with the Commission.

The COVID-19 pandemic is likely to continue to adversely affect the economies and financial markets of many countries, potentially leading to a global economic downturn, inflation or a recession. This has and may continue to adversely affect the demand environment for our products and those of our customers, particularly consumer products such as smartphones, which may, in turn negatively affect our revenue and operating results.

### Critical Accounting Policies and Estimates

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.

There have been no significant changes during the three and nine months ended December 24, 2022, to the information provided under the headings “*Critical Accounting Estimates”* and "*Summary of Significant Accounting Policies*" included in our fiscal year 2022 Annual Report on Form 10-K for the fiscal year ended March 26, 2022.

### 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 2023 and 2022 are both 52-week fiscal years.

The following table summarizes the results of our operations for the first three and nine months of fiscal years 2023 and 2022, respectively, as a percentage of net sales. All percentage amounts were calculated using the underlying data in thousands, unaudited:

|  | Three Months Ended December 24, 2022 | December 25, 2021 | Nine Months Ended December 24, 2022 | December 25, 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100% | 100% | 100% | 100% |
| Gross margin | 50% | 53% | 51% | 51% |
| Research and development | 20% | 20% | 23% | 23% |
| Selling, general and administrative | 6% | 7% | 8% | 8% |
| Income from operations | 24% | 26% | 20% | 20% |
| Interest income | 1% | —% | —% | —% |
| Interest expense | —% | —% | —% | —% |
| Other income (expense) | (1)% | —% | —% | —% |
| Income before income taxes | 24% | 26% | 20% | 20% |
| Provision for income taxes | 6% | 3% | 5% | 2% |
| Net income | 18% | 23% | 15% | 18% |

#### Net Sales

Net sales for the third quarter of fiscal year 2023 increased $42.3 million, or 8 percent, to $590.6 million from $548.3 million in the third quarter of fiscal year 2022. Net sales from high-performance mixed-signal products increased $36.8 million for the quarter versus the third quarter of fiscal year 2022, primarily due to higher average sales prices ("ASPs"), which helped offset increased costs, and content gains in smartphones, partially offset by lower sales of battery and power products in smartphones. Net sales from our audio products increased $5.4 million, primarily driven by higher ASPs, and partially offset by a reduction in smartphone units.

Net sales for the first nine months of fiscal year 2023 increased $233.3 million, or 18 percent, to $1.5 billion from $1.3 billion in the first nine months of fiscal year 2022. High-performance mixed-signal product sales increased 35.6% due to content gains and higher ASPs, which helped offset increased costs. Net sales from our audio products increased $79.6 million, primarily due to higher ASPs.

International sales, including sales to U.S.-based end customers that manufacture products through contract manufacturers or plants located overseas, were approximately 96 percent and 98 percent of net sales for the third quarters of fiscal years 2023 and 2022 and 97 percent and 98 percent for the first nine month periods of fiscal year 2023 and 2022, respectively. 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 third quarter of fiscal years 2023 and 2022, our ten largest end customers represented approximately 94 percent and 93 percent of our net sales, respectively. For the first nine months of fiscal year 2023 and 2022, our ten largest end customers represented approximately 92 percent and 93 percent of our net sales, respectively.

We had one end customer, Apple Inc., that purchased through multiple contract manufacturers and represented approximately 88 percent and 82 percent, of the Company’s total net sales for the third quarter of fiscal years 2023 and 2022, respectively and 83 percent and 79 percent for the first nine months of fiscal year 2023 and 2022, respectively.

No other end customer or distributor represented more than 10 percent of net sales for the three and nine months ended December 24, 2022 or December 25, 2021.

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 50.2 percent in the third quarter of fiscal year 2023, down from 52.8 percent in the third quarter of fiscal year 2022. The decrease reflects an increase in supply chain costs, and to a lesser extent, a less favorable product mix.

Gross margin was 50.5 percent for the first nine months of fiscal year 2023, down from 51.5 percent for the first nine months of fiscal year and 2022. The decrease was primarily due to an increase in supply chain costs. Offsetting the reduced gross margin were ASP increases in general market products and the absence of the purchase price fair value adjustment to inventory, which was a one-time event in the second quarter of fiscal year 2022, resulting from the Lion Semiconductor, Inc. ("Lion") acquisition (the "Acquisition").

#### Research and Development Expense

Research and development expense for the third quarter of fiscal year 2023 was $118.1 million, an increase of $11.0 million, from $107.1 million in the third quarter of fiscal year 2022, as we continued to invest in R&D. Significant drivers included higher product development, employee-related, facilities-related, and stock-based compensation costs, partially offset by decreased variable compensation costs.

Research and development expense for the first nine months of fiscal year 2023 was $343.3 million, an increase of $48.4 million, from $294.9 million for the first nine months of fiscal year 2022 primarily due to higher employee-related expenses, product development, stock-based compensation, facilities-related, amortization of acquisition intangibles, acquisition-related, and variable compensation costs.

#### Selling, General and Administrative Expense

Selling, general and administrative expense for the third quarter of fiscal year 2023 was $37.3 million, a decrease of $0.9 million, from $38.2 million in the third quarter of fiscal year 2022, primarily due to lower variable compensation and professional services costs, partially offset by higher employee-related expenses.

Selling, general and administrative expense for the first nine months of fiscal year 2023 was $115.5 million, an increase of $4.0 million, from $111.5 million for the first nine months of fiscal year 2022 primarily due to increased employee-related expenses, partially driven by higher travel and employee activity-related costs as the Company transitions from fully remote work arrangements, partially offset by reduced professional services costs for the fiscal year.

#### Interest Income

The Company reported interest income of $3.0 million and $5.0 million, for the three and nine months ended December 24, 2022, respectively and $0.1 million and $1.4 million for the three and nine months ended December 25, 2021, respectively. Interest income increased in the current period due to higher yields on combined average cash, cash equivalents and marketable securities balances, compared to the prior period.

#### Interest Expense

The Company reported interest expense of $0.2 million and $0.7 million for the three and nine months ended December 24, 2022, respectively and $0.2 million and $0.7 million for the three and nine months ended December 25, 2021, respectively. Interest expense consists primarily of commitment fees associated with the Company's Revolving Credit Facility (see Note 8).

#### Other Income (Expense)

For the three and nine months ended December 24, 2022, the Company reported $3.7 million and $2.9 million in other expense, respectively. For the three and nine months ended December 25, 2021, the Company reported $0.1 million in other expense and $1.5 million in other income, respectively. This activity primarily related to an equity investment write down and 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 December 24, 2022 | December 25, 2021 | Nine Months Ended December 24, 2022 | December 25, 2021 |
| --- | ---: | ---: | ---: | ---: |
| Income before income taxes | $140,441 | $144,009 | $313,325 | $260,721 |
| Provision for income taxes | $36,964 | $16,373 | $82,953 | $30,780 |
| Effective tax rate | 26.3% | 11.4% | 26.5% | 11.8% |

Our income tax expense for the third quarter of fiscal year 2023 was $37.0 million compared to $16.4 million for the third quarter of fiscal year 2022, resulting in effective tax rates of 26.3 percent and 11.4 percent, respectively. Our income tax expense was $83.0 million and $30.8 million for the first nine months of fiscal years 2023 and 2022, respectively, resulting in effective tax rates of 26.5 percent and 11.8 percent, respectively. Our effective tax rates for the third quarter and first nine months of fiscal year 2023 increased significantly year over year and were higher than the federal statutory rate primarily due to a provision in the Tax Cuts and Jobs Act of 2017 whereby research and development expenditures incurred in tax years beginning after December 31, 2021 must be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on the location in which the research activities are conducted. The resulting capitalization of research and development costs impacts the calculation of the Company's global intangible low-taxed income, which is treated as a period cost, beginning in the first quarter of fiscal year 2023. Our effective tax rates for the third quarter and first nine months of fiscal year 2022 were 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 Revolving Credit Facility.

Cash from operating activities is net income adjusted for certain non-cash items and changes in working capital. Cash flow from operations was $291.3 million for the first nine months of fiscal year 2023 versus $133.5 million cash used in operations for the corresponding period of fiscal year 2022. The cash flow from operations during the first nine months of fiscal year 2023 was related to the cash components of our net income and a $60.3 million unfavorable change in working capital, primarily as a result of an increase in accounts receivables and inventory and a decrease in accounts payable and other liabilities. The cash used in operations during the corresponding period of fiscal year 2022 was related to the cash components of our net income and a $450.5 million unfavorable change in working capital, primarily as a result of increases in long-term prepaid wafers associated with terms of the Capacity Reservation Agreement with GlobalFoundries (discussed further in Note 12 - Commitments and Contingencies of the Notes to the Consolidated Condensed Financial Statements), accounts receivables and other assets (a large portion of which resulted from terms of the Capacity Reservation Agreement with GlobalFoundries), partially offset by increases in acquisition-related liabilities and decreases in inventory for the period.

Net cash used in investing activities was $24.2 million during the first nine months of fiscal year 2023 versus $9.6 million during the first nine months of fiscal year 2022. The cash used in investing activities in the first nine months of fiscal year 2023 was related to capital expenditures and technology investments of $25.1 million, offset by net sales of marketable securities of $0.9 million. The cash used in investing activities in the corresponding period in fiscal year 2022 was related to the Acquisition, net of cash obtained, of $276.9 million and capital expenditures and technology investments of $21.6 million. Cash used in investing activities was offset by net sales of marketable securities of $288.9 million for the first nine months of fiscal year 2022.

Net cash used in financing activities was $202.4 million during the first nine months of fiscal year 2023 and was primarily associated with stock repurchases for the period of $156.4 million and the payment of the Acquisition-related holdback of $30.9 million. The cash used in financing activities during the first nine months of fiscal year 2022 of $104.0 million was primarily associated with stock repurchases during the period of $92.5 million.

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 Acquisition and potential future acquisitions of companies or technologies, commitments under the Capacity Reservation Agreement with GlobalFoundries (discussed further in Note 12 - Commitments and Contingencies of the Notes to the Consolidated Condensed Financial Statements), 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 8, 2021, the Company entered into a second amended and restated credit agreement (the “Second Amended Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto. The Second Amended Credit Agreement provides for a $300 million senior secured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility matures on July 8, 2026 (the “Maturity Date”). The Revolving Credit Facility is required to be guaranteed by all of Cirrus Logic’s material domestic subsidiaries ("Subsidiary Guarantors"). The Revolving Credit Facility is secured by substantially all the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.

Borrowings under the Revolving Credit Facility may, at Cirrus Logic’s 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 0.75% per annum for Base Rate Loans and 1.00% to 1.75% per annum for LIBOR Rate Loans based on the ratio of consolidated funded indebtedness to consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters (the “Consolidated Leverage Ratio”). The Second Amended Credit Agreement further provides a method for determining an alternative rate of interest if the LIBOR Rate is no longer available or upon the occurrence of certain other events. A Commitment Fee accrues at a rate per annum ranging from 0.175% to 0.275% (based on the Consolidated Leverage Ratio) on the average daily unused portion of the commitment of the lenders.

The Second Amended Credit Agreement contains customary affirmative covenants, including, among others, covenants regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements, and compliance with applicable laws and regulations. Further, the Second Amended Credit Agreement contains customary negative covenants limiting the ability of Cirrus Logic or any Subsidiary to, among other things, incur debt, grant liens, make investments, effect certain fundamental changes, make certain asset dispositions, and make certain restricted payments. The Revolving Credit Facility also contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness (minus up to $200 million of unrestricted cash and cash equivalents available on such date) to consolidated EBITDA for the prior four consecutive quarters must not be greater than 3.00 to 1.00 (the “Consolidated Net Leverage Ratio”) and (b) the ratio of consolidated EBITDA for the prior four consecutive quarters to consolidated interest expense paid or payable in cash for the prior four consecutive quarters must not be less than 3.00 to 1.00 (the “Consolidated Interest Coverage Ratio”).

As of December 24, 2022, the Company had no amounts outstanding under the Revolving Credit Facility and was in compliance with all covenants under the Second Amended Credit Agreement.

## 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 2022 Annual Report on Form 10-K filed with the Commission on May 20, 2022. For related financial statement impact see Note 5 - Derivative Financial Instruments.

## Controls and procedures

As filed, 1,447 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 Quarterly Report on 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 December 24, 2022.

#### Changes in control over financial reporting

There has been no change in the Company’s internal control over financial reporting during the quarter ended December 24, 2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 11,348 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 26, 2022, as filed with the Commission on May 20, 2022, 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 26, 2022.

***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 third quarter of fiscal years 2023 and 2022, our ten largest end customers represented approximately 94 percent and 93 percent of our net sales, respectively. For the first nine month periods of fiscal years 2023 and 2022, our ten largest end customers represented approximately 92 percent and 93 percent of our net sales, respectively. We had one end customer, Apple Inc., that purchased through multiple contract manufacturers and represented approximately 88 percent and 82 percent of the Company’s total net sales for the third quarter of fiscal years 2023 and 2022, respectively and 83 percent and 79 percent for the first nine months of fiscal years 2023 and 2022, respectively. No other end customer or distributor represented more than 10 percent of net sales for the three or nine months ended December 24, 2022, or December 25, 2021.

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

\- 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 either obtain or dual source components from other suppliers.

In addition, our dependence on a limited number of key customers may make it easier for them to pressure us on price reductions or to not accept price increases resulting from unexpected or additional cost increases or fees associated with our suppliers. We have experienced pricing pressure from certain key customers and we expect that the average selling prices for certain of our products will decline from time to time, potentially reducing our revenue, margins, and 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 tight development schedules. In addition, we have, and may again in the future, entered into customer agreements providing for exclusivity periods during which we may only sell specified products or technology to a specific 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.

***Our results have been and may continue to be impacted by recent significant increases in inflation in the U.S. and overseas.***

As previously disclosed in the risk factor section of our May 20, 2022 Annual Report on Form 10-K filing, we have been and may continue to be adversely impacted by global economic conditions. In recent months, inflation has continued to increase significantly in the U.S. and overseas resulting in rising transportation, wages, and other costs. Inflation has recently and may continue to increase our cost of labor, manufacturing, and other costs. If our costs continue to be subject to significant inflationary pressures, we may not be able to fully offset such higher costs with increased prices or revenues. Our inability or failure to do so could harm our business, financial condition, and results of operations. In addition, inflationary pressures could also result in a decline in consumer confidence and spending, potentially impacting demand for our customers' end products in the consumer electronics and smartphone markets. Any such decline would likely impact our business, operating results, and financial condition.

***Changes in government trade policies, including the imposition of tariffs and export restrictions, could have an adverse impact on our business operations and sales.***

The United States or foreign governments may enact changes in government trade policies that could adversely impact our ability to sell products in certain countries. For example, the U.S. government has imposed tariffs on certain Chinese imports and, in return, the Chinese government has imposed or proposed tariffs on certain U.S. products. Additionally, export restrictions imposed by the U.S. government, including the addition of licensing requirements by the United States Department of Commerce's Bureau of Industry and Security ("BIS") through the addition of companies to the BIS Entity List as well as trade restrictions imposed by the U.S. related to goods imported from regions in China with records of forced labor and other human rights issues, may require us to suspend our business with certain international customers and/or manufacturing entities if we conclude or are notified by the U.S. government that such business presents a risk of noncompliance with U.S.

regulations. For example, on October 7, 2022, BIS issued export controls requiring licenses for the export of advanced computing items along with licensing requirements for U.S. persons associated with the support, development, and production of certain semiconductor items in China.

We cannot predict what actions may be taken with respect to tariffs or trade relations, what products may be subject to such actions, or what actions may be taken by other countries in response. It also may not be possible to anticipate the timing or duration of such tariffs, export restrictions, or other regulatory actions. These government trade policies may materially adversely affect our sales and operations with current customers as well as impede our ability to develop relationships with new customers.

While we have received licenses from the U.S. government to export certain items to companies on the BIS Entity List, there can be no assurances that we will be able to continue to obtain or maintain licenses for the manufacture or sale of future products or for other entities if the U.S government adds other companies to the BIS Entity List and/or subjects them to additional trade restrictions. Despite our receipt of licenses, BIS Entity List restrictions may also encourage foreign customers to seek a greater supply of similar or substitute products from competitors or other third parties who are not subject to these restrictions or to develop their own solutions, especially as the Chinese government develops its domestic semiconductor industry. If export restrictions and tariffs are sustained for a long period of time, or increased, or if other export restrictions are imposed in the future, our long-term competitiveness as a supplier, particularly in China, will likely be impacted.

There is a risk of further escalation and retaliatory actions between the U.S. and other foreign governments. If significant tariffs or other restrictions are placed on goods exported from China or any related counter-measures are taken, our revenue and results of operations may be materially harmed. These tariffs may also make our customers' products more expensive for consumers, which may reduce consumer demand.

The U.S. government also may seek to implement more protective trade measures, not just with respect to China but with respect to other countries as well. This could include new or higher tariffs and even more restrictive trade barriers, such as prohibiting certain types of, or all, sales of certain products or products sold by certain parties into the U.S. Any increased trade barriers or restrictions on global trade could have a materially adverse impact on our business and financial results.

***Our products may be subject to average selling prices that decline over time. If we are unable to maintain or increase average selling prices for existing products, increase our volumes, introduce new or enhanced products with higher selling prices, or reduce our costs, our business and operating results could be harmed.***

Historically in the semiconductor industry, average selling prices of products have decreased over time. Moreover, our dependence on a limited number of key customers may make it easier for key customers to pressure us to reduce prices. Further, we have made commitments not to exceed certain pricing with some key customers on some of our products and we may not be able to pass on any unexpected or additional costs increases or fees associated with our suppliers.

If the average selling price of any of our products declines or we are unable to pass on increased supply costs to our customers, and we are unable to increase our unit volumes, introduce new or enhanced products with higher margins, and/or reduce manufacturing costs to offset anticipated decreases in the prices of our existing products, our operating results may be adversely affected.

In addition, because of procurement lead times, we are limited in our ability to reduce total costs quickly in response to any reductions in prices or sales shortfalls. Because of these factors, we may experience adverse fluctuations in our future operating results on a quarterly or annual basis.

Filed Feb 2, 2023.
Source: SEC EDGAR, the filing index for accession 0000772406-23-000006. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.