# MACOM Technology Solutions Holdings, Inc.: Form 10-Q for the period ended Dec 30, 2022

- Company: [MACOM Technology Solutions Holdings, Inc.](/companies/mtsi.md) (CIK 1493594)
- Form: 10-Q
- Filed: 2023-02-02
- Accepted by EDGAR: Feb 2, 2023, 16:03 ET
- Period: 2022-12-30
- Accession: 0001493594-23-000035
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1493594/000149359423000035/mtsi-20221230.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1493594/000149359423000035/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-12-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-10-01 to 2022-12-30 | $180.1m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2022-10-01 to 2022-12-30 | $69.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-10-01 to 2022-12-30 | $110.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-10-01 to 2022-12-30 | $38.8m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-10-01 to 2022-12-30 | $32.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-10-01 to 2022-12-30 | $38.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-10-01 to 2022-12-30 | $9.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-10-01 to 2022-12-30 | $29.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-10-01 to 2022-12-30 | $0.41 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-10-01 to 2022-12-30 | $0.42 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-10-01 to 2022-12-30 | 71,374,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-10-01 to 2022-12-30 | $38.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-10-01 to 2022-12-30 | $9.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2022-10-01 to 2022-12-30 | $26.4m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-12-30 | $126.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-12-30 | $847.6m | us-gaap:AssetsCurrent |
| Total assets | at 2022-12-30 | $1.59bn | us-gaap:Assets |
| Current liabilities | at 2022-12-30 | $93.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-12-30 | $725.2m | us-gaap:Liabilities |
| Long-term debt | at 2022-12-30 | $566.3m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2022-12-30 | $862.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,004 characters.

*The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 filed with the United States Securities and Exchange Commission (“SEC”) on November 14, 2022 (the “2022 Annual Report on Form 10-K”).*

In this document, the words “Company,” “we,” “our,” “us,” and similar terms refer only to MACOM Technology Solutions Holdings, Inc. and its consolidated subsidiaries, and not any other person or entity.

“MACOM,” “MACOM Technology Solutions,” and related logos are trademarks of MACOM Technology Solutions Holdings, Inc. All other brands and names listed are trademarks of their respective owners.

### Cautionary Note Regarding Forward-Looking Statements

This Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Quarterly Report on Form 10-Q contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements regarding our business outlook, strategic plans and priorities, expectations, anticipated drivers of future revenue growth, our pending acquisition of OMMIC SAS, industry trends, the potential impacts of COVID-19 on our future operations and results, our estimated annual effective tax rate, our plans for use of our cash and cash equivalents and short-term investments, interest rate and foreign currency risks, our ability to meet working capital requirements, estimates and objectives for future operations, our future results of operations and our financial position, including liquidity, and other matters that do not relate strictly to historical facts. Forward-looking statements generally may be identified by terms such as “anticipates,” “believes,” “could,” “continue,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “targets,” “will,” “would” or similar expressions or variations or the negatives of those terms. These statements are based on management's beliefs and assumptions as of the date of this Quarterly Report on Form 10-Q, based on information currently available to us. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q and the 2022 Annual Report on Form 10-K. We caution the reader to carefully consider such factors. Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

### Overview

We design and manufacture semiconductor products for Telecommunications (“Telecom”), Industrial and Defense (“I&D”) and Data Center industries. Headquartered in Lowell, Massachusetts, with operational facilities throughout North America, Europe and Asia, we design, develop and manufacture differentiated semiconductor products for customers who demand high performance, quality and reliability. We have more than 70 years of application expertise, combined with expertise in analog and mixed signal circuit design, compound semiconductor fabrication (including gallium arsenide, gallium nitride, indium phosphide and specialized silicon), advanced packaging and back-end assembly and test. We offer a broad portfolio of thousands of standard and custom devices, which include integrated circuits (“IC”), multi-chip modules, diodes, amplifiers, switches and switch limiters, passive and active components and complete subsystems, across dozens of product lines serving over 6,000 end customers in three primary markets. Our semiconductor products are electronic components that our customers generally incorporate into larger electronic systems, such as wireless communication systems including basestations, high capacity optical networks, data center applications, radar, medical systems and test and measurement applications. Our primary end markets are: (1) Telecom, which includes carrier infrastructure such as long-haul/metro, 5G and Fiber-to-the-X/passive optical network, among others; (2) I&D, which includes military and commercial radar, radio frequency (“RF”) jammers, electronic countermeasures, communication data links, satellite communications and multi-market applications, which include industrial, medical, test and measurement and scientific applications; and (3) Data Center, which includes intra-Data Center, Data Center Interconnect applications, at 100G, 200G, 400G, 800G and higher speeds, enabled by our broad portfolio of analog ICs and photonic components for high speed optical module customers.

### COVID-19 Impact

COVID-19 has spread throughout areas of the world where we operate and resulted in authorities implementing numerous measures to try to contain the virus. As a result of these measures and the spread of COVID-19, we have modified our business practices and may further modify our practices as required, or as we determine appropriate. While these measures, as well as other disruptions, have impacted our operations, the operations of our customers and those of our respective vendors and suppliers, such impacts did not, through the three months ended December 30, 2022, have a material impact on our consolidated operating results. However, the degree to which COVID-19 may impact our business, financial condition, results of operations, liquidity and cash flows will continue to depend on future developments, which remain highly uncertain and cannot be predicted.

For additional information on risk factors that could impact our future results, please refer to the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q and the 2022 Annual Report on Form 10-K.

### Description of Our Revenue

*Revenue.* Our revenue is derived from sales of high-performance RF, microwave, millimeter wave, optical and photonic semiconductor products. We design, integrate, manufacture and package differentiated, semiconductor-based products that we sell to customers through our direct sales organization, our network of independent sales representatives and our distributors.

We believe the primary drivers of our future revenue growth will include:

- continued growth in the demand for high-performance analog, digital and optical semiconductors in our three primary markets;
- introducing new products using advanced technologies, added features, higher levels of integration and improved performance;
- increasing content of our semiconductor solutions in customers’ systems through cross-selling our product lines;
- leveraging our core strength and leadership position in standard, catalog products that service all of our end applications; and
- engaging early with our lead customers to develop custom and standard products.

Our core strategy is to develop and innovate high-performance products that address our customers’ most difficult technical challenges in our primary markets: Telecom, I&D and Data Center.

We expect our revenue in the Telecom market to be driven by 5G deployments, with continued upgrades and expansion of communications equipment, and increasing adoption of our high-performance RF, millimeter wave, optical and photonic components.

We expect our revenue in the I&D market to be driven by the expanding product portfolio that we offer which services applications such as test and measurement, satellite communications, civil and military radar, industrial, automotive, scientific and medical applications, further supported by growth in applications for our multi-market catalog products.

We expect our revenue in the Data Center market to be driven by the adoption of cloud-based services and the upgrade of data center architectures to 100G, 200G, 400G and 800G interconnects, which we expect will drive adoption of higher speed optical and photonic components.

**Critical Accounting Policies and Estimate**s

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements. The preparation of financial statements, in conformity with GAAP, requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the reported amounts of revenue and expenses during the reporting period and disclosure of contingent assets and liabilities at the date of the financial statements. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and could be material if our actual or expected experience were to change unexpectedly. On an ongoing basis, we re-evaluate our estimates and judgments.

We base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates and material effects on our operating results and financial position may result. The accounting policies which our management believes involve the most significant application of judgment or involve complex estimation, are inventories and associated reserves; revenue reserves; share-based compensation valuations and income taxes.

For additional information related to these and other accounting policies refer to *Note 2 - Summary of Significant Accounting Policies* to our Consolidated Financial Statements included in Item 8 of Part II, “Financial Statements and Supplementary Data,” of the 2022 Annual Report on Form 10-K and *Note 1 - Basis of Presentation and Summary of Significant Accounting Policies* to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

### Results of Operations

The following table sets forth, for the periods indicated, our statements of operations data (in thousands):

|  | Three Months Ended December 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Revenue | $180,104 | $159,620 |
| Cost of revenue (1) | 69,749 | 65,477 |
| Gross profit | 110,355 | 94,143 |
| Operating expenses: |  |  |
| Research and development (1) | 38,832 | 35,470 |
| Selling, general and administrative (1) | 32,940 | 31,604 |
| Total operating expenses | 71,772 | 67,074 |
| Income from operations | 38,583 | 27,069 |
| Other income (expense): |  |  |
| Interest income (expense), net | 602 | (1,693) |
| Other (expense) income, net (2) | (55) | 114,908 |
| Total other income, net | 547 | 113,215 |
| Income before income taxes | 39,130 | 140,284 |
| Income tax expense | 9,611 | 1,457 |
| Net income | $29,519 | $138,827 |

(1) Includes (a) Amortization expense related to intangible assets arising from acquisitions and (b) Share-based compensation expense included in our condensed consolidated statements of operations as set forth below (in thousands):

| (a) Intangible amortization expense: | Three Months Ended December 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Cost of revenue | $910 | $2,505 |
| Selling, general and administrative | 5,903 | 6,782 |
| (b) Share-based compensation expense: |  |  |
| Cost of revenue | $1,150 | $1,033 |
| Research and development | 4,232 | 3,599 |
| Selling, general and administrative | 5,665 | 5,317 |

(2) The three months ended December 31, 2021 includes a gain on the sale of our equity method investment of $118.2 million and net losses of $3.3 million associated with such equity method investment. See *Note 3 - Investments* to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.

The following table sets forth, for the periods indicated, our statements of operations data expressed as a percentage of our revenue:

|  | Three Months Ended December 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Revenue | 100.0% | 100.0% |
| Cost of revenue | 38.7 | 41.0 |
| Gross profit | 61.3 | 59.0 |
| Operating expenses: |  |  |
| Research and development | 21.6 | 22.2 |
| Selling, general and administrative | 18.3 | 19.8 |
| Total operating expenses | 39.9 | 42.0 |
| Income from operations | 21.4 | 17.0 |
| Other income (expense): |  |  |
| Interest income (expense), net | 0.3 | (1.1) |
| Other (expense) income, net | 0.0 | 72.0 |
| Total other income, net | 0.3 | 70.9 |
| Income before income taxes | 21.7 | 87.9 |
| Income tax expense | 5.3 | 0.9 |
| Net income | 16.4% | 87.0% |

### Comparison of the Three Months Ended December 30, 2022 to the Three Months Ended December 31, 2021

*Revenue.* Our revenue increased by $20.5 million, or 12.8%, to $180.1 million for the three months ended December 30, 2022, from $159.6 million for the three months ended December 31, 2021. The increase in revenue in the three months ended December 30, 2022 is described by end market in the following paragraphs.

Revenue from our primary markets, the percentage of change between the periods presented, and revenue by primary markets expressed as a percentage of total revenue in the periods presented were (in thousands, except percentages):

|  | Three Months Ended December 30, 2022 | December 31, 2021 | % Change |
| --- | ---: | ---: | ---: |
| Telecom | $61,450 | $55,822 | 10.1% |
| Industrial & Defense | 77,169 | 73,146 | 5.5% |
| Data Center | 41,485 | 30,652 | 35.3% |
| Total | $180,104 | $159,620 | 12.8% |
| Telecom | 34.1% | 35.0% |  |
| Industrial & Defense | 42.9% | 45.8% |  |
| Data Center | 23.0% | 19.2% |  |
| Total | 100.0% | 100.0% |  |

In the three months ended December 30, 2022, our Telecom market revenue increased by $5.6 million, or 10.1%, compared to the three months ended December 31, 2021. The increase for the three months ended December 30, 2022 was primarily driven by an increase in RF and microwave products for metro long-haul broadband access and video infrastructure, products targeted for carrier-based optical semiconductor products and non-recurring license revenue of $2.0 million, partially offset by a decrease in sales of legacy products.

In the three months ended December 30, 2022, our I&D market revenue increased by $4.0 million, or 5.5%, compared to the three months ended December 31, 2021. The increase in the three months ended December 30, 2022 was primarily related to ongoing defense program shipments and expansion of high-performance analog product lines into the I&D market.

In the three months ended December 30, 2022, our Data Center market revenue increased by $10.8 million, or 35.3%, compared to the three months ended December 31, 2021. The increase in the three months ended December 30, 2022 was primarily due to an increase in sales of our high-performance analog Data Center products and certain legacy products which were supply constrained in prior periods, partially offset by a decrease in sales of optical semiconductor products.

*Gross profit.* Gross margin was 61.3% and 59.0% for the three months ended December 30, 2022 and December 31, 2021, respectively. Gross profit was $110.4 million and $94.1 million for the three months ended December 30, 2022 and December 31, 2021, respectively. Gross profit increased for the three months ended December 30, 2022 as compared to the three months ended December 31, 2021 primarily as a result of higher sales, including $2.0 million of license revenue, favorable revenue mix, production efficiencies, lower intangible amortization, partially offset by increases in production supplies, employee headcount and employee-related costs.

*Research and development.* Research and development expense increased by $3.4 million, or 9.5%, to $38.8 million, or 21.6% of our revenue, for the three months ended December 30, 2022, compared to $35.5 million, or 22.2% of our revenue, for the three months ended December 31, 2021. Research and development expense increased in the three months ended December 30, 2022 primarily as a result of an increase in employee headcount, employee-related costs, share-based compensation expense, development foundry costs and a loss on disposal of equipment.

*Selling, general and administrative.* Selling, general and administrative expense increased by $1.3 million, or 4.2%, to $32.9 million, or 18.3% of our revenue, for the three months ended December 30, 2022, compared to $31.6 million, or 19.8% of our revenue, for the three months ended December 31, 2021. Selling, general and administrative expense increased in the three months ended December 30, 2022 primarily due to an increase in outside professional fees, share-based compensation expense and variable costs, partially offset by a decrease in intangible amortization.

*Interest income (expense), net.* In the three months ended December 30, 2022, interest income, net was $0.6 million, or 0.3% of our revenue, compared to interest expense, net of $1.7 million, or 1.1% of our revenue, for the three months ended December 31, 2021. The change for the three months ended December 30, 2022 is primarily due to an increase in interest income on short-term investments and an increase in short-term investments, partially offset by an increase in interest expense on the Term Loans.

*Other (expense) income, net.* In the three months ended December 30, 2022, other expense, net was $0.1 million, or less than 0.1% of our revenue, compared to other income, net of $114.9 million, or 72.0% of our revenue, for the three months ended December 31, 2021. The three months ended December 31, 2021 includes a gain on the sale of our equity method investment of $118.2 million and net losses of $3.3 million associated with such equity method investment. See *Note 3 - Investments* to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.

*Provision for income taxes.* Our income tax expense and effective income tax rates for the periods indicated were (in thousands, except percentages):

|  | Three Months Ended December 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Income tax expense | 9,611 | 1,457 |
| Effective income tax rate | 24.6% | 1.0% |

The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three months ended December 30, 2022, was primarily driven by tax on GILTI, non-deductible compensation and state income taxes partially offset by income taxed in foreign jurisdictions generally at lower tax rates, and R&D tax credits. The difference between the U.S. federal statutory income tax rate of 21% and our effective income tax rate for the three months ended December 31, 2021 was primarily driven by the full valuation allowance against any expense associated with income in the U.S. and income taxed in foreign jurisdictions generally at lower tax rates, where a valuation allowance does not apply. Our estimated annual effective tax rate for the year ending September 29, 2023 is expected to be approximately 30%, adjusted for discrete taxation matters arising during the interim periods.

For additional information refer to *Note 13 - Income Taxes* to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

### Liquidity and Capital Resources

The following table summarizes our cash flow activities (in thousands):

|  | Three Months Ended December 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Cash and cash equivalents, beginning of period | $119,952 | $156,537 |
| Net cash provided by operating activities | 38,273 | 34,104 |
| Net cash (used in) provided by investing activities | (7,950) | 105,737 |
| Net cash used in financing activities | (24,333) | (22,900) |
| Foreign currency effect on cash | 213 | (82) |
| Cash and cash equivalents, end of period | $126,155 | $273,396 |

### Cash Flow from Operating Activities

Our cash flow from operating activities for the three months ended December 30, 2022 of $38.3 million consisted of a net income of $29.5 million plus adjustments of $32.6 million, to reconcile our net income to cash provided by operating activities, less cash used in operating assets and liabilities of $23.8 million. Adjustments to reconcile our net income to cash provided by operating activities primarily included depreciation and intangible amortization expense of $12.9 million, share-based compensation expense of $11.0 million and deferred income tax expense of $9.1 million. In addition, cash used in operating assets and liabilities was $23.8 million for the three months ended December 30, 2022, primarily driven by an increase in accounts receivable of $10.5 million, an increase in inventories of $6.4 million and a decrease of $10.3 million in accrued and other liabilities, partially offset by an increase in accounts payable of $3.7 million.

Our cash flow from operating activities for the three months ended December 31, 2021 of $34.1 million consisted of a net income of $138.8 million, less adjustments to reconcile our net income to cash provided by operating activities of $88.4 million and cash used in operating assets and liabilities of $16.3 million. Adjustments to reconcile our net income to cash provided by operating activities primarily included a net gain of $114.9 million related to the sale of our equity method investment offset by equity method investment losses, depreciation and intangible amortization expense of $15.2 million and share-based compensation expense of $9.9 million. In addition, cash used in operating assets and liabilities was $16.3 million for the three months ended December 31, 2021, primarily driven by an increase in accounts receivable of $12.9 million and an increase in inventories of $5.8 million.

### Cash Flow from Investing Activities

Our cash flow used in investing activities for the three months ended December 30, 2022 of $8.0 million consisted primarily of purchases of $145.3 million of short-term investments and capital expenditures of $9.6 million, offset by proceeds of $147.0 million for the sale and maturity of short-term investments.

Our cash flow provided by investing activities for the three months ended December 31, 2021 of $105.7 million consisted primarily of proceeds from the sale of our equity method investment of $127.8 million, proceeds of $58.5 million for the sale and maturity of short-term investments, offset by purchases of $75.4 million of short-term investments and capital expenditures of $5.1 million. For additional information on the sale of our equity method investment, see *Note 3 - Investments* to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

### Cash Flow from Financing Activities

During the three months ended December 30, 2022, our cash used in financing activities of $24.3 million was primarily related to $26.4 million of repurchases of common stock associated with employee tax withholdings on vested equity awards, partially offset by $2.3 million of proceeds from employee stock purchases.

During the three months ended December 31, 2021, our cash used in financing activities of $22.9 million was primarily related to $27.8 million of repurchases of stock associated with employee tax withholdings on vested equity awards, partially offset by $5.1 million of proceeds from stock option exercises and employee stock purchases.

### Liquidity

As of December 30, 2022, we held $126.2 million of cash and cash equivalents, primarily deposited with financial institutions, as well as $468.6 million of liquid short-term investments. The undistributed earnings of certain foreign subsidiaries are considered indefinitely reinvested for the periods presented and we do not intend to repatriate such earnings. We believe the decision to reinvest these earnings will not have a significant impact on our liquidity. As of December 30, 2022, cash held by our indefinitely reinvested foreign subsidiaries was $14.1 million, which, along with cash generated from foreign operations, is expected to be used in the support of international growth and working capital requirements as well as the repayment of certain intercompany loans.

We plan to use our remaining available cash and cash equivalents and short-term investments for general corporate purposes, including working capital, or for the acquisition of or investment in complementary technologies, design teams, products and businesses. We believe that our cash and cash equivalents, short-term investments and cash generated from operations will be sufficient to meet our working capital requirements for at least the next twelve months. We may need to raise additional capital from time to time through the issuance and sale of equity or debt securities, and there is no assurance that we will be able to do so on favorable terms or at all.

As of December 30, 2022, we had no off-balance sheet arrangements.

For additional information related to our Liquidity and Capital Resources, see *Note 8 - Debt* to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

### Recent Accounting Pronouncements

See *Note 1 - Basis of Presentation and Summary of Significant Accounting Policies* to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for information about recent accounting pronouncements.

## Market risk

As filed, 2,910 characters.

We are exposed to market risk in the ordinary course of business, which consists primarily of interest rate risk associated with our cash and cash equivalents, short-term investments and our variable rate debt, as well as foreign exchange rate risk.

*Interest rate risk.* The primary objectives of our investment activity are to preserve principal, provide liquidity and invest excess cash for an average rate of return. To minimize market risk, we maintain our portfolio in cash and diversified investments, which may consist of corporate bonds, bank deposits, money market funds and commercial paper. The interest rates are variable and fluctuate with current market conditions. The risk associated with fluctuating interest rates is limited to this investment portfolio. We believe that a 10% change in interest rates would not have a material impact on our financial position or results of operations. We do not enter into financial instruments for trading or speculative purposes.

Our exposure to interest rate risk also relates to the increase or decrease in the amount of interest expense we must pay on the outstanding debt under the Credit Agreement. The interest rates on our Term Loans are variable interest rates based on our lender’s prime rate or a LIBOR rate, in each case plus an applicable margin, which exposes us to market interest rate risk when we have outstanding borrowings under the Credit Agreement. As of December 30, 2022, we had $120.8 million of outstanding borrowings under the Credit Agreement. Assuming our outstanding debt remains constant under the Credit Agreement for an entire year and the applicable annual interest rate increases or decreases by 1%, our annual interest expense would increase or decrease by $1.2 million. The interest rates on our 2026 Convertible Notes are fixed and therefore not subject to interest rate risk.

*Foreign currency risk.* To date, our international customer agreements have been denominated primarily in U.S. dollars. Accordingly, we have limited exposure to foreign currency exchange rates. The functional currency of a majority of our foreign operations continues to be in U.S. dollars with the remaining operations being local currency. Changes in the value of the U.S. dollar relative to other currencies could make our products more expensive, which could negatively impact demand in certain regions, reduce or delay customer orders, or otherwise negatively affect how customers do business with us. The effects of exchange rate fluctuations on the net assets of the majority of our operations are accounted for as transaction gains or losses. We believe that a change of 10% in such foreign currency exchange rates would not have a material impact on our financial position or results of operations. In the future, we may enter into foreign currency exchange hedging contracts to reduce our exposure to changes in exchange rates.

## Controls and procedures

As filed, 1,580 characters.

### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of December 30, 2022.

### Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Controls

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

## Risk factors

As filed, 507 characters.

Our business involves a high degree of risk. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2022 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes in any of the risk factors described in our 2022 Annual Report on Form 10-K.

Filed Feb 2, 2023.
Source: SEC EDGAR, the filing index for accession 0001493594-23-000035. Last ingested by Listed: Nov 10, 2026, 06:50 ET. No prices; not investment advice.