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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
____________________________________
FORM 10-Q
____________________________________
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended October 29, 2023
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from             to             
Commission File Number 001-06395
____________________________________ 
SEMTECH CORPORATION
(Exact name of registrant as specified in its charter)
 ____________________________________
Delaware 95-2119684
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)

200 Flynn Road, Camarillo, California, 93012-8790
(Address of principal executive offices, Zip Code)

Registrant’s telephone number, including area code: (805) 498-2111
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s) Name of each exchange on which registered
Common Stock par value $0.01 per shareSMTC The Nasdaq Global Select Market
____________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x   No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   x   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x  Accelerated filer  
Non-accelerated filer 
  Smaller reporting company  
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No  x 
Number of shares of common stock, $0.01 par value per share, outstanding at December 1, 2023: 64,284,760



SEMTECH CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 29, 2023
 
2


Unless the context otherwise requires, the use of the terms "Semtech," "the Company," "we," "us" and "our" in this Quarterly Report on Form 10-Q refers to Semtech Corporation and, as applicable, its consolidated subsidiaries. This Quarterly Report on Form 10-Q may contain references to the Company’s trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other company.
Special Note Regarding Forward-Looking and Cautionary Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Forward-looking statements are statements other than historical information or statements of current condition and relate to matters such as future financial performance, future operational performance, the anticipated impact of specific items on future earnings, and our plans, objectives and expectations. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "estimate," "should," "will," "designed to," "projections," or "business outlook," or other similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and events to differ materially from those projected. Potential factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: the Company's ability to comply with, or pursue business strategies due to, the covenants under the agreements governing its indebtedness; the Company's ability to forecast and achieve anticipated net sales and earnings estimates in light of periodic economic uncertainty; the inherent risks, costs and uncertainties associated with integrating Sierra Wireless, Inc. successfully and risks of not achieving all or any of the anticipated benefits or the risk that the anticipated benefits may not be fully realized or take longer to realize than expected; the uncertainty surrounding the impact and duration of supply chain constraints and any associated disruptions; export restrictions and laws affecting the Company's trade and investments and tariffs or the occurrence of trade wars; worldwide economic and political disruptions, including as a result of inflation and current geopolitical conflicts; tightening credit conditions related to the United States banking system concerns; competitive changes in the marketplace including, but not limited to, the pace of growth or adoption rates of applicable products or technologies; downturns in the business cycle; decreased average selling prices of the Company’s products; the Company’s reliance on a limited number of suppliers and subcontractors for components and materials; changes in projected or anticipated end-user markets; future responses to and effects of public health crises; and those factors set forth under "Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2023, and under “Risk Factors” in this Quarterly Report on Form 10-Q, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with SEC. In light of the significant risks and uncertainties inherent in the forward-looking information included herein that may cause actual performance and results to differ materially from those predicted, any such forward-looking information should not be regarded as representations or guarantees by the Company of future performance or results, or that its objectives or plans will be achieved, or that any of its operating expectations or financial forecasts will be realized. Reported results should not be considered an indication of future performance. Investors are cautioned not to place undue reliance on any forward-looking information contained herein, which reflect management’s analysis only as of the date hereof. Except as required by law, the Company assumes no obligation to publicly release the results of any update or revision to any forward-looking statement that may be made to reflect new information, events or circumstances after the date hereof or to reflect the occurrence of unanticipated or future events, or otherwise.
In addition to regarding forward-looking statements with caution, you should consider that the preparation of the consolidated financial statements requires us to draw conclusions and make interpretations, judgments, assumptions and estimates with respect to certain factual, legal, and accounting matters. Our consolidated financial statements might have been materially impacted if we had reached different conclusions or made different interpretations, judgments, assumptions or estimates.
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PART I - FINANCIAL INFORMATION
 
ITEM 1.Financial Statements

SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
 Three Months EndedNine Months Ended
 October 29, 2023October 30, 2022October 29, 2023October 30, 2022
Net sales$200,899 $177,618 $675,810 $589,021 
Cost of sales97,925 62,049 347,734 207,380 
Amortization of acquired technology10,008 1,000 31,436 3,096 
Total cost of sales107,933 63,049 379,170 210,476 
Gross profit92,966 114,569 296,640 378,545 
Operating costs and expenses, net:
Selling, general and administrative47,663 40,227 165,022 131,710 
Product development and engineering46,911 35,056 144,945 114,446 
Intangible amortization4,853 — 14,606 — 
Restructuring3,646 2,244 14,608 2,244 
Gain on sale of business— (327)— (18,313)
Goodwill impairment2,266 — 281,821 — 
Total operating costs and expenses, net105,339 77,200 621,002 230,087 
Operating (loss) income(12,373)37,369 (324,362)148,458 
Interest expense(28,305)(9,009)(72,986)(11,465)
Interest income574 839 2,317 1,758 
Non-operating income (expense), net3,542 (64)1,503 (596)
Investment impairments and credit loss reserves, net(1,990)(29)(2,250)376 
(Loss) income before taxes and equity method (loss) income(38,552)29,106 (395,778)138,531 
(Benefit) provision for income taxes(311)6,327 53,864 26,415 
Net (loss) income before equity method (loss) income(38,241)22,779 (449,642)112,116 
Equity method (loss) income(11)(36)(30)271 
Net (loss) income(38,252)22,743 (449,672)112,387 
Net loss attributable to noncontrolling interest(2)(3)(5)(6)
Net (loss) income attributable to common stockholders$(38,250)$22,746 $(449,667)$112,393 
(Loss) earnings per share:
Basic$(0.60)$0.36 $(7.02)$1.76 
Diluted$(0.60)$0.36 $(7.02)$1.76 
Weighted-average number of shares used in computing (loss) earnings per share:
Basic64,216 63,764 64,048 63,738 
Diluted64,216 63,855 64,048 64,040 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
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SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND LOSS
(in thousands)
(unaudited)

  Three Months EndedNine Months Ended
 October 29, 2023October 30, 2022October 29, 2023October 30, 2022
Net (loss) income$(38,252)$22,743 $(449,672)$112,387 
Other comprehensive (loss) income, net:
Unrealized (loss) gain on foreign currency cash flow hedges, net(65)(382)(92)164 
Reclassifications of realized (gain) loss on foreign currency cash flow hedges, net, to net (loss) income(165)72 (441)(69)
Unrealized gain on interest rate cash flow hedges, net7,713 505 21,900 2,069 
Reclassifications of realized gain on interest rate cash flow hedges, net, to net loss(2,163)(625)(5,755)(680)
Cumulative translation adjustment(5,664)— (13,362)(48)
Change in defined benefit plans, net(51)22 (153)68 
Other comprehensive (loss) income, net(395)(408)2,097 1,504 
Comprehensive (loss) income(38,647)22,335 (447,575)113,891 
Comprehensive loss attributable to noncontrolling interest(2)(3)(5)(6)
Comprehensive (loss) income attributable to common stockholders$(38,645)$22,338 $(447,570)$113,897 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.









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SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
October 29, 2023January 29, 2023
Assets
Current assets:
Cash and cash equivalents$123,820 $235,510 
Accounts receivable, less allowances of $3,657 and $3,881, respectively
156,613 161,695 
Inventories160,586 207,704 
Prepaid taxes10,193 6,243 
Other current assets121,192 111,634 
Total current assets572,404 722,786 
Non-current assets:
Property, plant and equipment, net of accumulated depreciation of $279,147 and $257,978, respectively
158,834 169,293 
Deferred tax assets13,597 63,783 
Goodwill1,013,679 1,281,703 
Other intangible assets, net168,230 215,102 
Other assets111,385 116,961 
TOTAL ASSETS$2,038,129 $2,569,628 
Liabilities and Equity
Current liabilities:
Accounts payable$55,008 $100,676 
Accrued liabilities183,989 253,075 
Current portion of long-term debt— 43,104 
Total current liabilities238,997 396,855 
Non-current liabilities:
Deferred tax liabilities4,526 5,065 
Long-term debt1,373,618 1,296,966 
Other long-term liabilities86,549 114,707 
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 64,284,760 outstanding and 78,136,144 issued and 63,870,581 outstanding, respectively
785 785 
Treasury stock, at cost, 13,851,384 shares and 14,265,563 shares, respectively
(560,894)(577,907)
Additional paid-in capital480,340 471,374 
Retained earnings408,573 858,240 
Accumulated other comprehensive income5,457 3,360 
Total stockholders’ equity334,261 755,852 
Noncontrolling interest178 183 
Total equity334,439 756,035 
TOTAL LIABILITIES AND EQUITY$2,038,129 $2,569,628 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
Three Months Ended October 29, 2023
Common StockAccumulated Other Comprehensive Income
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at July 30, 202364,030,212 $785 $(572,990)$486,365 $446,823 $5,852 $366,835 $180 $367,015 
Net loss— — — — (38,250)— (38,250)(2)(38,252)
Other comprehensive loss— — — — — (395)(395)— (395)
Share-based compensation— — — 9,132 — — 9,132 — 9,132 
Treasury stock reissued to settle share-based awards254,548 — 12,096 (15,157)— — (3,061)— (3,061)
Balance at October 29, 202364,284,760 $785 $(560,894)$480,340 $408,573 $5,457 $334,261 $178 $334,439 
Nine Months Ended October 29, 2023
Common StockAccumulated Other Comprehensive Income
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at January 29, 202363,870,581 $785 $(577,907)$471,374 $858,240 $3,360 $755,852 $183 $756,035 
Net loss— — — — (449,667)— (449,667)(5)(449,672)
Other comprehensive income— — — — — 2,097 2,097 — 2,097 
Share-based compensation— — — 31,455 — — 31,455 — 31,455 
Treasury stock reissued to settle share-based awards414,179 — 17,013 (22,489)— — (5,476)— (5,476)
Balance at October 29, 202364,284,760 $785 $(560,894)$480,340 $408,573 $5,457 $334,261 $178 $334,439 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

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SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(in thousands, except share data)
(unaudited)
Three Months Ended October 30, 2022
Common StockAccumulated Other Comprehensive Loss
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at July 31, 202263,516,341 $785 $(594,449)$506,178 $886,507 $(163)$798,858 $188 $799,046 
Net income— — — — 22,746 — 22,746 (3)22,743 
Other comprehensive loss— — — — — (408)(408)— (408)
Sale of warrants (see Note 9)
— — — 42,909 — — 42,909 — 42,909 
Purchase of convertible note hedge (see Note 9)
— — — (72,559)— — (72,559)— (72,559)
Share-based compensation— — — 9,016 — — 9,016 — 9,016 
Treasury stock reissued to settle share-based awards321,388 — 15,181 (23,331)— — (8,150)— (8,150)
Balance at October 30, 202263,837,729 $785 $(579,268)$462,213 $909,253 $(571)$792,412 $185 $792,597 
Nine Months Ended October 30, 2022
Common StockAccumulated Other Comprehensive Loss
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at January 30, 202264,098,565 $785 $(549,942)$491,956 $796,860 $(2,075)$737,584 $191 $737,775 
Net income— — — — 112,393 — 112,393 (6)112,387 
Other comprehensive income— — — — — 1,504 1,504 — 1,504 
Sale of warrants (see Note 9)
— — — 42,909 — — 42,909 — 42,909 
Purchase of convertible note hedge (see Note 9)
— — — (72,559)— — (72,559)— (72,559)
Share-based compensation— — — 33,727 — — 33,727 — 33,727 
Repurchase of common stock(762,093)— (50,000)— — — (50,000)— (50,000)
Treasury stock reissued to settle share-based awards501,257 — 20,674 (33,820)— — (13,146)— (13,146)
Balance at October 30, 202263,837,729 $785 $(579,268)$462,213 $909,253 $(571)$792,412 $185 $792,597 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.

8


SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
 October 29, 2023October 30, 2022
Cash flows from operating activities:
Net (loss) income$(449,672)$112,387 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization69,104 22,321 
Amortization of right-of-use assets4,954 3,475 
Investment impairments and credit loss reserves, net2,250 (376)
Accretion of deferred financing costs4,940 520 
Write-off of deferred financing costs4,446 — 
Deferred income taxes56,355 2,383 
Share-based compensation28,341 27,228 
Gain on disposition of business operations and assets(259)(18,256)
Equity method loss (income)30 (271)
Corporate-owned life insurance, net2,797 23 
Goodwill impairment281,821 — 
Amortization of inventory step-up3,314 — 
Changes in assets and liabilities:
Accounts receivable, net5,016 (9,032)
Inventories41,631 (3,470)
Other assets(13,203)4,170 
Accounts payable(33,768)(3,430)
Accrued liabilities(109,127)12,127 
Other liabilities(6,809)(4,289)
Net cash (used in) provided by operating activities(107,839)145,510 
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment408 33 
Purchase of property, plant and equipment(27,473)(22,643)
Proceeds from sale of investments— 2,275 
Purchase of investments(930)(6,748)
Purchase of intangibles(771)— 
Proceeds from sale of business, net of cash disposed— 26,322 
Proceeds from corporate-owned life insurance2,500 5,065 
Premiums paid for corporate-owned life insurance— (5,065)
Net cash used in investing activities(26,266)(761)
Cash flows from financing activities:
Proceeds from revolving line of credit70,000 10,000 
Payments of revolving line of credit— (33,000)
Payments of term loans(272,375)— 
Proceeds from convertible senior notes250,000 319,500 
Proceeds from sale of warrants— 42,909 
Purchase of convertible note hedge— (72,559)
Deferred financing costs(17,812)(10,253)
Payments for employee share-based compensation payroll taxes(5,476)(13,766)
Proceeds from exercise of stock options— 620 
Repurchase of common stock— (50,000)
Net cash provided by financing activities24,337 193,451 
Effect of foreign exchange rate changes on cash and cash equivalents(1,922)— 
Net (decrease) increase in cash and cash equivalents(111,690)338,200 
Cash and cash equivalents at beginning of period235,510 279,601 
Cash and cash equivalents at end of period$123,820 $617,801 

9


SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
(unaudited)
Nine Months Ended
 October 29, 2023October 30, 2022
Supplemental disclosure of cash flow information:
Interest paid$63,525 $10,267 
Income taxes paid$19,655 $8,749 
Non-cash investing and financing activities:
Accounts payable related to capital expenditures$281 $3,803 
Accrued deferred financing costs$8,418 $3,330 
Conversion of notes into equity$1,271 $— 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
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SEMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Organization and Basis of Presentation
Nature of Business
Semtech Corporation (together with its consolidated subsidiaries, the "Company" or "Semtech") is a high-performance semiconductor, Internet of things ("IoT") systems and cloud connectivity service provider. The end customers for the Company’s silicon solutions are primarily original equipment manufacturers that produce and sell technology solutions. The Company’s IoT module, router, gateway and managed connectivity solutions ship to IoT device makers and enterprises to provide IoT connectivity to end devices.
The Company designs, develops and markets a wide range of products for commercial applications, the majority of which are sold into the infrastructure, high-end consumer and industrial end markets.
Basis of Presentation
The Company reports results on the basis of 52 and 53-week periods and ends its fiscal year on the last Sunday in January. The other quarters generally end on the last Sunday of April, July and October. All quarters consist of 13 weeks except for one 14-week period in the fourth quarter of 53-week years. The third quarters of fiscal years 2024 and 2023 each consisted of 13 weeks.
Principles of Consolidation
The accompanying interim unaudited condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2023 ("Annual Report"). The Company’s interim unaudited condensed consolidated statements of operations are referred to herein as the "Statements of Operations," the Company’s interim unaudited condensed consolidated balance sheets are referred to herein as the "Balance Sheets," and the Company's interim unaudited condensed consolidated statements of cash flows are referred to herein as the "Statements of Cash Flows." In the opinion of the Company, these interim unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, the financial position and results of operations of the Company for the interim periods presented. All intercompany balances have been eliminated. Because the interim unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for a complete set of consolidated financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report. The results reported in these interim unaudited condensed consolidated financial statements should not be regarded as indicative of results that may be expected for any subsequent period or for the entire year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
In fiscal year 2023, the Company reclassified amounts recorded for amortization of acquired technology intangible assets as a component of cost of sales. This was applied retrospectively and resulted in the reclassification of $1.0 million and $3.1 million of amortization of acquired technology intangible assets for the three and nine months ended October 30, 2022, respectively, from "Intangible amortization" within "Total operating costs and expenses, net" to "Amortization of acquired technology" within "Total cost of sales" in the Statements of Operations, which also had the impact of reducing gross profit by the same amount. This reclassification did not impact the Company's operating income, net income or earnings per share for any historical periods and also did not impact the Balance Sheets or Statements of Cash Flows.
During the third quarter of fiscal year 2024, the Company reclassified restructuring costs that were included in "Selling, general and administrative" and "Product development and engineering" within "Total operating costs and expenses, net" in the Statements of Operations to be separately presented in "Restructuring" within "Total operating costs and expenses, net" in the Statements of Operations. This was applied retrospectively and resulted in the reclassification of $2.1 million of restructuring costs for each of the three and nine months ended October 30, 2022 from "Selling, general and administrative" and $0.1 million of restructuring costs for each of the three and nine months ended October 30, 2022 from "Product development and engineering" to "Restructuring" in the Statements of Operations. This reclassification did not impact the Company's gross
11


profit, operating income, net income or earnings per share for any historical periods and also did not impact the Balance Sheets or Statements of Cash Flows.
Liquidity
The accompanying interim unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Management evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern over the next twelve months from the issuance of the accompanying interim unaudited condensed consolidated financial statements.
Compliance with the financial covenants in the Company’s Credit Agreement (as defined in Note 9, Long-Term Debt) is measured quarterly and failure to meet the covenant requirements would constitute an event of default under the Credit Agreement. There is no certainty the Company would be able to obtain waivers or amendments with the requisite lenders party thereto in order to maintain compliance. Due to risks and uncertainties with regards to forecasts and projections about our operations, industry, financial condition, performance, operating results and liquidity, the Company may not maintain compliance with the financial covenants over the next twelve months from the issuance of the accompanying interim unaudited condensed consolidated financial statements, which noncompliance would raise substantial doubt about the Company’s ability to continue as a going concern. If an event of default occurs and the Company is unable to obtain necessary waivers or amendments, the requisite lenders may elect to declare all outstanding borrowings, together with accrued and unpaid interest and other amounts payable thereunder, to be immediately due and payable. Further, if an event of default occurs, the lenders will have the right to proceed against the collateral granted to them to secure that debt. If the debt under the Credit Agreement were to be accelerated, the Company’s assets may not be sufficient to repay in full the debt that may become due as a result of that acceleration. The Company could seek replacement financing at prevailing market rates or raise additional capital by issuing equity or debt securities; however, this may not be on terms favorable to the Company, or available at all.
As of October 29, 2023, the Company was in compliance with the financial covenants in the Credit Agreement. In response to adverse market demand conditions, the Company has taken actions to reduce expenses and maintain compliance with its financial covenants. During the third quarter of fiscal year 2024, the Company entered into the Third Amendment (as defined in Note 9, Long-Term Debt) to extend and temporarily expand financial covenant relief under the Credit Agreement.
Based on the Company’s current projections, management believes the Company will maintain compliance with its financial covenants and the Company’s existing cash, projected operating cash flows and available borrowing capacity under its Revolving Credit Facility (as defined in Note 9, Long-Term Debt) are adequate to meet its operating needs, liabilities and commitments over the next twelve months from the issuance of the accompanying interim unaudited condensed consolidated financial statements.
Recent Accounting Pronouncements
The Company has considered all recent accounting pronouncements issued, but not yet effective, and does not expect any to have a material effect on the Company’s financial statements or results of operations.


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Note 2: Acquisition and Divestiture
Acquisition of Sierra Wireless, Inc.
On January 12, 2023 (the "Acquisition Date"), the Company completed the acquisition of all of the issued and outstanding common shares of Sierra Wireless, Inc. ("Sierra Wireless") in an all-cash transaction representing a total purchase consideration of approximately $1.3 billion (the "Sierra Wireless Acquisition"). The results of operations of Sierra Wireless have been included in the Statements of Operations since the Acquisition Date.
The transaction was accounted for as a business combination in accordance with Accounting Standards Codification ("ASC") 805, "Business Combinations." The purchase price allocation for the Sierra Wireless Acquisition was completed during the third quarter of fiscal year 2024. The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. In the fourth quarter of fiscal year 2023, a preliminary goodwill balance of $931.4 million was recognized for the excess of the consideration transferred over the net assets acquired and represented the expected revenue and cost synergies of the combined company and assembled workforce. In the nine months ended October 29, 2023, the Company finalized measurement period adjustments related to identifiable intangible assets, inventories, property, plant, and equipment, income and non-income based taxes, legal matters, and other assets and liabilities, which have been recorded to reflect facts and circumstances that existed as of the Acquisition Date. These adjustments increased the goodwill balance by $23.9 million to $955.3 million. In the nine months ended October 29, 2023, the Company also finalized its determination of the reporting units related to the Sierra Wireless Acquisition and completed an allocation of the goodwill balance to these reporting units. See Note 8, Goodwill and Intangible Assets, for additional information.
The following table presents the fair values of assets and liabilities assumed on the Acquisition Date based on valuations and management's estimates:
(in thousands)Amounts recognized as of Acquisition Date (as initially reported)Measurement period adjustmentAmounts recognized as of Acquisition Date (as adjusted)
Total purchase price consideration, net of cash acquired $68,794
$1,240,757 $1,240,757 
Assets:— 
Accounts receivable, net92,633 — 92,633 
Inventories96,339 (1,899)94,440 
Other current assets72,724 5,003 77,727 
Property, plant and equipment29,086 (2,628)26,458 
Intangible assets214,780 — 214,780 
Prepaid taxes3,001 — 3,001 
Deferred tax assets22,595 285 22,880 
Other assets14,878 — 14,878 
Liabilities:— 
Accounts payable50,413 210 50,623 
Accrued liabilities148,654 26,232 174,886 
Deferred tax liabilities4,824 350 5,174 
Other long-term liabilities32,785 (2,106)30,679 
Net assets acquired, excluding goodwill$309,360 $(23,925)$285,435 
Goodwill$931,397 $23,925 $955,322 
See Note 8, Goodwill and Intangible Assets, for additional information about goodwill impairments recorded in the three and nine months ended October 29, 2023 related to the Sierra Wireless Acquisition.
The following table provides a summary of the pro forma unaudited consolidated results of operations as if the Sierra Wireless Acquisition had been completed on February 1, 2021 (the first day of fiscal year 2022):
Three Months EndedNine Months Ended
October 30, 2022October 30, 2022
(in thousands)(unaudited)(unaudited)
Total revenues$343,674 $1,115,985 
Net loss$(5,806)$34,768 
The unaudited pro forma information presented does not purport to be indicative of the results that would have been achieved had the acquisition been consummated at the beginning of the period presented nor of the results which may occur in the future. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The unaudited pro forma information does not include any adjustments for any restructuring activities, operating efficiencies or cost savings. The Company ends its fiscal year on the last Sunday in January. Prior to the transaction, Sierra
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Wireless's fiscal year ended on December 31. To comply with SEC rules and regulations for companies with different fiscal year ends, the pro forma combined financial information has been prepared utilizing periods that differ by up to a month.
Divestiture
On May 3, 2022, the Company completed the divestiture of its high reliability discrete diodes and assemblies business (the “Disposal Group”) to Micross Components, Inc. for $26.2 million, net of cash disposed, in an all-cash transaction. The divestiture resulted in a gain of $0.3 million and $18.3 million for the three and nine months ended October 30, 2022, respectively, which was recorded in "Gain on sale of business" in the Statements of Operations. As a result of the transaction, the Company disposed of $0.8 million of goodwill based on the relative fair value of the Disposal Group and the portion of the applicable reporting unit that was retained. The estimated fair value of the Disposal Group less estimated costs to sell exceeded its carrying amount as of the transaction date. As the sale of the Disposal Group was not considered a strategic shift that would have a major effect on the Company’s operations or financial results, it was not reported as discontinued operations.
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Note 3: (Loss) Earnings per Share
The computation of basic and diluted (loss) earnings per share was as follows:
 Three Months EndedNine Months Ended
(in thousands, except per share data)October 29, 2023October 30, 2022October 29, 2023October 30, 2022
Net (loss) income attributable to common stockholders$(38,250)$22,746 $(449,667)$112,393 
Weighted-average shares outstanding–basic64,216 63,764 64,048 63,738 
Dilutive effect of share-based compensation— 91 — 302 
Weighted-average shares outstanding–diluted64,216 63,855 64,048 64,040 
(Loss) earnings per share:
Basic$(0.60)$0.36 $(7.02)$1.76 
Diluted$(0.60)$0.36 $(7.02)$1.76 
Anti-dilutive shares not included in the above calculations:
Share-based compensation2,034 1,229 2,179 759 
Warrants8,573 8,573 8,573 8,573 
Total anti-dilutive shares10,607 9,802 10,752 9,332 
Basic earnings or loss per share is computed by dividing income or loss available to common stockholders by the weighted-average number of shares of common stock outstanding during the reporting period. Diluted earnings or loss per share incorporates the incremental shares issuable, calculated using the treasury stock method, upon the assumed exercise of non-qualified stock options and the vesting of restricted stock units, market-condition restricted stock units and financial metric-based restricted stock units if certain conditions have been met, but excludes such incremental shares that would have an anti-dilutive effect. Due to the Company's net loss for the three and nine months ended October 29, 2023, all shares underlying stock options and restricted stock units are considered anti-dilutive.
Any dilutive effect of the Warrants (as defined in Note 9, Long-Term Debt) is calculated using the treasury-stock method. During the three and nine months ended October 29, 2023, the Warrants were excluded from diluted shares outstanding because the exercise price exceeded the average market price of the Company's common stock for the reporting period and due to net loss.
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Note 4: Share-Based Compensation
Financial Statement Effects and Presentation
Pre-tax share-based compensation was included in the Statements of Operations as follows:
Three Months EndedNine Months Ended
(in thousands)October 29, 2023October 30, 2022October 29, 2023October 30, 2022
Cost of sales$507 $633 $1,395 $2,018 
Selling, general and administrative3,059 (1,028)16,970 13,692 
Product development and engineering2,972 3,480 9,976 11,518 
Total share-based compensation$6,538 $3,085 $28,341 $27,228 
Restricted Stock Units, Employees
The Company grants restricted stock units to certain employees of which a portion are expected to be settled with shares of the Company's common stock and a portion are expected to be settled in cash. The restricted stock units that are to be settled with shares are accounted for as equity. The grant date for these awards is equal to the measurement date and they are valued as of the measurement date, based on the fair value of the Company's common stock at the grant date, and recognized as share-based compensation expense over the requisite vesting period (typically 3 or 4 years). The restricted stock units that are to be settled in cash are accounted for as liabilities and the value of the awards is re-measured at the end of each reporting period until settlement at the end of the requisite vesting period (typically 3 years). In the nine months ended October 29, 2023, the Company granted to certain employees 1,016,388 restricted stock units that settle in shares with a weighted-average grant date fair value of $27.27, including 123,652 restricted stock units granted to the current Chief Executive Officer ("CEO") that vest quarterly over a 3-year period and 232,635 restricted stock units granted to the former CEO ("Former CEO") prior to his retirement that vest quarterly over an 18-month period. In the nine months ended October 29, 2023, the Company granted to certain employees 9,432 restricted stock units that settle in cash.
Restricted Stock Units, Non-Employee Directors
The Company maintains a compensation program pursuant to which restricted stock units are granted to the Company’s directors that are not employed by the Company or any of its subsidiaries. Under the Company's director compensation program, a portion of the restricted stock units granted under the program would be settled in cash and a portion would be settled in shares of the Company's common stock. Restricted stock units awarded under the program are generally scheduled to vest on the earlier of (i) one year after the grant date or (ii) the day immediately preceding the first annual meeting of the Company's stockholders following the grant. The portion of a restricted stock unit award under the program that is to be settled in cash will, subject to vesting, be settled when the director who received the award separates from service. The portion of a restricted stock unit award under the program that is to be settled in shares of stock will, subject to vesting, be settled promptly following vesting. In the nine months ended October 29, 2023, the Company granted to certain non-employee directors 37,116 restricted stock units that settle in cash and 37,116 restricted stock units that settle in shares with a weighted-average grant date fair value of $25.28.
The restricted stock units that are to be settled in cash are accounted for as liabilities. These awards are not typically settled until a non-employee director’s separation from service. The value of both the unvested and vested but unsettled awards are re-measured at the end of each reporting period until settlement. As of October 29, 2023, the total number of vested, but unsettled awards was 227,109 units and the liability associated with these awards was $3.0 million, of which $1.3 million was included in "Accrued liabilities" in the Balance Sheets relating to two previous non-employee directors currently serving short-term non-employee consultancies for the Company. The remaining $1.7 million was included in "Other long-term liabilities" in the Balance Sheets.
Total Stockholder Return ("TSR") Market-Condition Restricted Stock Units
The Company grants TSR market-condition restricted stock units (the "TSR Awards") to certain executives of the Company, which are settled in shares and accounted for as equity awards. The TSR Awards have a pre-defined market-condition, which determines the number of shares that ultimately vest, as well as a service condition. The TSR Awards are valued as of the grant date using a Monte Carlo simulation, which takes into consideration the possible outcomes pertaining to the TSR market condition and expense is recognized on a straight-line basis over the requisite service periods and is adjusted for any actual forfeitures.
In the nine months ended October 29, 2023, the Company granted 202,951 TSR Awards, including 109,107 TSR Awards granted in the first quarter of fiscal year 2024, 61,827 TSR Awards granted in the second quarter of fiscal year 2024 and 32,017 TSR Awards granted in the third quarter of fiscal year 2024. The market condition is determined based upon the Company’s TSR benchmarked against the TSR of the Russell 3000 Index over one, two and three year performance periods (one-third of
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the awards vesting each performance period). Generally, the award recipients must be employed for the entire performance period and be an active employee at the time of vesting of the awards. The grant-date fair values per unit of the TSR Awards granted in the first quarter of fiscal year 2024 for each one, two and three year performance period were $39.47, $45.36 and $49.79, respectively. The grant-date fair values per unit of the TSR Awards granted in the second quarter of fiscal year 2024 for each one, two and three year performance period were $23.65, $32.78 and $38.65, respectively. The grant-date fair values per unit of the TSR Awards granted in the third quarter of fiscal year 2024 for each one, two and three year performance period were $24.05, $32.09 and $37.51, respectively. Under the terms of these awards, assuming the highest performance level of 200% with no cancellations due to forfeitures, the maximum potential number of shares that can be earned in aggregate for the cumulative fiscal years 2024, 2025 and 2026 performance periods would be 405,902 shares.
Financial Metric-Based Restricted Stock Units
The Company grants financial metric-based restricted stock units to certain executives of the Company, which are settled in shares and accounted for as equity awards. These awards have a performance condition in addition to a service condition. The number of vested shares for each performance period is determined based on the Company’s attainment of pre-established revenue and non-GAAP operating income targets for the respective performance period. The vesting for tranches after the initial performance period is dependent on revenue and non-GAAP operating income for the preceding performance period. The financial metric-based restricted stock units are valued as of the measurement date and compensation cost is recognized using the accelerated attribution method over the requisite service period based on the number of shares that are probable of attainment for each fiscal year.
In the nine months ended October 29, 2023, the Company granted 109,107 financial metric-based restricted stock units with a weighted-average grant date fair value of $30.21 that vest over one, two and three year performance periods (one-third of the awards vesting each performance period). Generally, the award recipients must be employed for the entire performance period and be an active employee at the time of vesting of the awards. Under the terms of these awards, assuming the highest performance level of 200% with no cancellations due to forfeitures, the maximum potential number of shares that can be earned in aggregate for the cumulative fiscal years 2024, 2025 and 2026 performance periods would be 218,214 shares.
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Note 5: Available-for-sale securities
The following table summarizes the values of the Company’s available-for-sale securities:
 October 29, 2023January 29, 2023
(in thousands)Fair ValueAmortized
Cost
Gross
Unrealized Loss
Fair ValueAmortized
Cost
Gross
Unrealized Loss
Convertible debt investments$12,725 $14,259 $(1,534)$13,995 $15,635 $(1,640)
Total available-for-sale securities$12,725 $14,259 $(1,534)$13,995 $15,635 $(1,640)
The following table summarizes the maturities of the Company’s available-for-sale securities:
October 29, 2023
(in thousands)Fair ValueAmortized Cost
Within 1 year$12,725 $14,259 
Total available-for-sale securities$12,725 $14,259 
The Company's available-for-sale securities consist of investments in convertible debt instruments issued by privately-held companies and are recorded at fair value. See Note 6, Fair Value Measurements, for further discussion of the valuation of the available-for-sale securities. The available-for-sale securities with maturities within one year were included in "Other current assets" and with maturities greater than one year were included in "Other assets" in the Balance Sheets. Unrealized gains or losses, net of tax, were recorded in "Accumulated other comprehensive income (loss)" in the Balance Sheets, and realized gains or losses as well as current expected credit loss reserves were recorded in "Non-operating income, net" in the Statements of Operations.






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Note 6: Fair Value Measurements
The following fair value hierarchy is applied for disclosure of the inputs used to measure fair value and prioritizes the inputs into three levels as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities in active markets or other inputs that are observable for the assets or liabilities, either directly or indirectly.
Level 3—Unobservable inputs based on the Company’s own assumptions, requiring significant management judgment or estimation.
Instruments Measured at Fair Value on a Recurring Basis
The fair values of financial assets and liabilities measured and recorded at fair value on a recurring basis were presented in the Balance Sheets as follows:
 October 29, 2023January 29, 2023
(in thousands)Total(Level 1)(Level 2)(Level 3)Total(Level 1)(Level 2)(Level 3)
Financial assets:
Interest rate swap agreement$20,603 $— $20,603 $— $6,067 $— $6,067 $— 
Total return swap contracts— — — — 91 — 91 — 
Convertible debt investments12,725 — — 12,725 13,995 — — 13,995 
Foreign currency forward contracts— — — — 717 — 717 — 
Total financial assets$33,328 $— $20,603 $12,725 $20,870 $— $6,875 $13,995 
Financial liabilities:
Interest rate swap agreement— — — — 6,432 — 6,432 — 
Total return swap contracts419 — 419 — — — — — 
Total financial liabilities$419 $— $419 $— $6,432 $— $6,432 $— 
During the nine months ended October 29, 2023, the Company had no transfers of financial assets or liabilities between Level 1, Level 2 or Level 3. As of October 29, 2023 and January 29, 2023, the Company had not elected the fair value option for any financial assets and liabilities for which such an election would have been permitted.
The convertible debt investments are valued utilizing a combination of estimates that are based on the estimated discounted cash flows associated with the debt and the fair value of the equity into which the debt may be converted, all of which are Level 3 inputs.
The following table presents a reconciliation of the changes in convertible debt investments in the nine months ended October 29, 2023:
(in thousands)
Balance at January 29, 2023$13,995 
Increase in credit loss reserve(610)
Interest accrued611 
Conversion to equity(1,271)
Balance at October 29, 2023$12,725 
The interest rate swap agreements are measured at fair value using readily available interest rate curves (Level 2 inputs). The fair value of each agreement is determined by comparing, for each settlement, the contract rate to the forward rate and discounting to the present value. Contracts in a gain position are recorded in "Other current assets" and "Other assets" in the Balance Sheets and the value of contracts in a loss position are recorded in "Accrued liabilities" and "Other long-term liabilities" in the Balance Sheets. See Note 17, Derivatives and Hedging Activities, for further discussion of the Company’s derivative instruments.
The foreign currency forward contracts were measured at fair value using readily available foreign currency forward and interest rate curves (Level 2 inputs). The fair value of each contract was determined by comparing the contract rate to the forward rate and discounting to the present value. Contracts in a gain position were recorded in "Other current assets" in the
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Balance Sheets and the value of contracts in a loss position were recorded in "Accrued liabilities" in the Balance Sheets. See Note 17, Derivatives and Hedging Activities, for further discussion of the Company’s derivative instruments.
The total return swap contracts are measured at fair value using quoted prices of the underlying investments (Level 2 inputs). The fair values of the total return swap contracts are recognized in the Balance Sheets in "Other Current Assets" if the instruments are in a gain position and in "Accrued Liabilities" if the instruments are in a loss position. See Note 17, Derivatives and Hedging Activities, for further discussion of the Company's derivative instruments.
Instruments Not Recorded at Fair Value
Some of the Company’s financial instruments are not measured at fair value, but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents including money market deposits, net receivables, certain other assets, accounts payable, accrued expenses, accrued personnel costs, and other current liabilities. The Company’s revolving loans and Term Loans (as defined in Note 9, Long-Term Debt) are recorded at cost, which approximates fair value as the debt instruments bear interest at a floating rate. The 2027 Notes and 2028 Notes (as defined in Note 9, Long-Term Debt) are carried at face value less unamortized debt issuance costs, with interest expense reflecting the cash coupon plus the amortization of the capitalized issuance costs. The estimated fair values are determined based on the actual bid prices of the 2027 Notes and 2028 Notes as of the last business day of the period.
The following table displays the carrying values and fair values of the 2027 Notes and 2028 Notes:
 October 29, 2023January 29, 2023
(in thousands)Fair Value HierarchyCarrying ValueFair ValueCarrying ValueFair Value
1.625% convertible senior notes due 2027, net (1)
Level 2309,961 309,961 308,150 345,075 
4.00% convertible senior notes due 2028, net (2)
Level 2241,448 228,606 — — 
Total long-term debt, net of debt issuance costs$551,409 $538,567 $308,150 $345,075 
(1) The 1.625% convertible senior notes due 2027, net, are reflected net of $9.5 million and $11.4 million of unamortized debt issuance costs as of October 29, 2023 and January 29, 2023, respectively.
(2) The 4.00% convertible senior notes due 2028, net, are reflected net of $8.6 million of unamortized debt issuance costs as of October 29, 2023.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
The Company reduces the carrying amounts of its intangible assets, long-lived assets and non-marketable equity securities to fair value when it determines they are impaired.
Investment Impairments and Credit Loss Reserves
The total credit loss reserve for the Company's held-to-maturity debt securities and available-for-sale debt securities decreased to $4.0 million as of October 29, 2023 from $4.2 million as of January 29, 2023. Additionally, in the three and nine months ended October 29, 2023, the Company recorded an other-than-temporary impairment of $1.6 million on one of its non-marketable equity investments. Credit loss reserves related to the Company’s available-for-sale debt securities and held-to-maturity debt securities with maturities within one year were included in “Other current assets” and with maturities greater than one year were included in “Other assets” in the Balance Sheets.





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Note 7: Inventories
Inventories, consisting of material, material overhead, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or net realizable value and consisted of the following:
(in thousands)October 29, 2023January 29, 2023
Raw materials and electronic components$52,544 $76,919 
Work in progress72,338 88,764 
Finished goods35,704 42,021 
Total inventories$160,586 $207,704 
In the nine months ended October 29, 2023, the Company recorded $3.3 million of amortization of inventory step-up related to the Sierra Wireless Acquisition in Cost of Sales in the Statements of Operations.
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Note 8: Goodwill and Intangible Assets
Goodwill
The carrying amounts of goodwill by applicable operating segment were as follows:
(in thousands)Signal IntegrityAdvanced Protection and Sensing IoT SystemsIoT Connected ServicesUnallocatedTotal
Balance at January 29, 2023$274,085 $14,639 $61,582 $— $931,397 $1,281,703 
Measurement period adjustment— — — — 23,925 $23,925 
Reallocation— — 655,527 299,795 (955,322)— 
Cumulative translation adjustment— — (2,663)(7,465)— (10,128)
Impairment— — (211,212)(70,609)— (281,821)
Balance at October 29, 2023$274,085 $14,639 $503,234 $221,721 $— $1,013,679 
On January 12, 2023, in connection with the Sierra Wireless Acquisition, the Company acquired all of the outstanding equity interests in Sierra Wireless and a preliminary goodwill balance of $931.4 million was recorded for the excess of the consideration transferred over the net assets acquired and represented the expected revenue and cost synergies of the combined company and assembled workforce. In the nine months ended October 29, 2023, the Company recorded measurement period adjustments that increased goodwill by $23.9 million. See Note 2, Acquisition and Divestiture, for further discussion of the Sierra Wireless Acquisition and impact of the measurement period adjustments. In the fourth quarter of fiscal year 2023, in conjunction with the Sierra Wireless Acquisition, the Company formed two additional operating segments: the IoT Systems operating segment, which also absorbed portions of the Company's previous Wireless and Sensing operating segment, and the IoT Connected Services operating segment. In the nine months ended October 29, 2023, the Company finalized the determination of the reporting units related to the previously-identified operating segments. IoT Systems-Modules and IoT Systems-Routers were identified as reporting units, which together with IoT Systems-Wireless (f.k.a. Wireless and Sensing) reporting unit, aggregate into the IoT Systems operating segment. IoT Connected Services comprises one reporting unit and, accordingly, is both a reporting unit and an operating segment. During the nine months ended October 29, 2023, the Company also completed an allocation of the goodwill balance resulting from the Sierra Wireless Acquisition to each of these reporting units.
Goodwill is not amortized, but is tested for impairment at the reporting unit level using either a qualitative or quantitative assessment on an annual basis during the fourth quarter of each fiscal year, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit.
During the second quarter of fiscal year 2024, as a result of reduced earnings forecasts associated with the business acquired from Sierra Wireless and current macroeconomic conditions, including a rising interest rate environment, the Company performed an interim impairment test using a quantitative assessment of the reporting units related to the Sierra Wireless Acquisition (specifically, the IoT Connected Services, IoT Systems–Modules and IoT Systems–Routers reporting units). The interim impairment test resulted in $279.6 million of total pre-tax non-cash goodwill impairment charges recorded during the second quarter of fiscal year 2024 in the Statements of Operations, consisting of $69.0 million of goodwill impairment for the IoT Connected Services reporting unit, $109.9 million of goodwill impairment for the IoT Systems–Modules reporting unit and $100.7 million goodwill impairment for the IoT Systems–Routers reporting unit. During the third quarter of fiscal year 2024, the Company recorded an additional $2.3 million of total pre-tax non-cash goodwill impairment charges resulting from the finalization of the measurement period adjustments, consisting of $1.6 million of goodwill impairment for the IoT Connected Services reporting unit, $0.2 million of goodwill impairment for the IoT Systems–Modules reporting unit and $0.5 million of goodwill impairment for the IoT Systems–Routers reporting unit. The fair values of these reporting units were determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach). Significant inputs to the reporting unit fair value measurements included forecasted cash flows, discount rates, terminal growth rates and earnings multiples, which were determined by management estimates and assumptions. The reporting unit fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.
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Purchased and Other Intangibles
The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions, which are amortized over their estimated useful lives:
 October 29, 2023January 29, 2023
(in thousands, except estimated useful life)Estimated
Useful Life
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Core technologies
1-8 years
$154,562 $(32,549)$122,013 $175,080 $(21,156)$153,924 
Customer relationships
1-10 years
51,744 (12,791)38,953 53,000 (690)52,310 
Trade name
2-10 years
9,000 (2,507)6,493 9,000 (132)8,868 
Total finite-lived intangible assets$215,306 $(47,847)$167,459 $237,080 $(21,978)$215,102 
Amortization expense of finite-lived intangible assets was as follows:
Three Months EndedNine Months Ended
(in thousands)October 29, 2023October 30, 2022October 29, 2023October 30, 2022
Core technologies$10,008 $1,000 $31,436 $3,096 
Customer relationships4,061 — 12,231 — 
Trade name792 — 2,375 — 
Total amortization expense$14,861 $1,000 $46,042 $3,096 
Amortization expense of finite-lived intangible assets related to core technologies was recorded in “Amortization of acquired technology” within “Total cost of sales” in the Statements of Operations and amortization expense of finite-lived intangible assets related to customer relationships and trade name was recorded in “Intangible amortization” within “Total operating costs and expenses, net” in the Statements of Operations. As of the Acquisition Date, the weighted-average amortization period for the finite-lived intangible assets acquired in the Sierra Wireless Acquisition was 5.3 years, which reflects weighted-average amortization periods of 4.4 years, 7.9 years and 6.2 years for core technologies, customer relationships and trade name, respectively.
Future amortization expense of finite-lived intangible assets is expected as follows:
(in thousands)Core TechnologiesCustomer RelationshipsTrade nameTotal
2024 (remaining three months)$9,990 $3,531 $792 $14,313 
202539,449 3,954 1,722 45,125 
202632,342 3,954 500 36,796 
202717,481 3,954 500 21,935 
202813,469 3,954 500 17,923 
Thereafter9,282 19,606 2,479 31,367 
Total expected amortization expense$122,013 $38,953 $6,493 $167,459 
Also presented in “Other intangible assets, net” in the Balance Sheets, are finite-lived intangible assets under construction to be amortized upon placement in service. The following table sets forth the Company’s finite-lived intangible assets under construction:
(in thousands)Net Carrying Amount
Value at January 29, 2023$— 
Capitalized development costs771 
Value at October 29, 2023$771 
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Note 9: Long-Term Debt
Long-term debt and the current period interest rates were as follows:
(in thousands, except percentages)October 29, 2023January 29, 2023
Revolving loans$220,000 $150,000 
Terms loans622,625 895,000 
1.625% convertible senior notes due 2027
319,500 319,500 
4.00% convertible senior notes due 2028
250,000 — 
Total debt$1,412,125 $1,364,500 
Current portion, net$— $(43,104)
Debt issuance costs(38,507)(24,430)
Total long-term debt, net of debt issuance costs$1,373,618 $1,296,966 
Weighted-average effective interest rate (1)
5.57 %4.84 %
(1) The revolving loans and Term Loans (as defined below) bear interest at variable rates based on Adjusted Term SOFR or a Base Rate (as defined herein), at the Company’s option, plus an applicable margin that varies based on the Company’s consolidated leverage ratio. In the first quarter of fiscal year 2024, the Company entered into an interest rate swap agreement with a 2.75 year term to hedge the variability of interest payments on $150.0 million of debt outstanding on the Term Loans at a fixed Term SOFR rate of 3.58%, plus a variable margin and spread based on the Company’s consolidated leverage ratio. In the fourth quarter of fiscal year 2023, the Company entered into an interest rate swap agreement with a 5 year term to hedge the variability of interest payments on $450.0 million of debt outstanding on the Term Loans at a fixed Term SOFR rate of 3.44%, plus a variable margin and spread based on the Company’s consolidated leverage ratio. As of October 29, 2023, the effective interest rate was a weighted-average rate that represented (a) interest on the revolving loans at a floating SOFR rate of 5.33% plus a margin and spread of 3.36% (total floating rate of 8.70%), (b) interest on $450.0 million of the debt outstanding on the Term Loans at a fixed SOFR rate of 3.44% plus a margin and spread of 3.35% (total fixed rate of 6.79%), (c) interest on $150.0 million of the debt outstanding on the Terms Loans at a fixed SOFR rate of 3.58% plus a margin and spread of 3.35% (total fixed rate of 6.93%), (d) interest on the remaining debt outstanding on the Term Loans at a floating SOFR rate of 5.33% plus a margin and spread of 3.35% (total floating rate of 8.68%), (e) interest on the 2027 Notes outstanding at a fixed rate of 1.625%, and (f) interest on the 2028 Notes outstanding at a fixed rate of 4.00%. As of January 29, 2023, the effective interest rate was a weighted average-rate that represented (a) interest on the revolving loans at a fixed LIBOR rate of 0.73% plus a margin and spread of 2.36% (total fixed rate of 3.09%) (b) interest on $450.0 million of the debt outstanding on the Term Loans at a fixed SOFR rate of 3.44% plus a margin and spread of 2.35% (total fixed rate of 5.79%), (c) interest on the remaining debt outstanding on the Term Loans at a floating SOFR rate of 4.43% plus a margin and spread of 2.35% (total floating rate of 6.78%) and (d) interest on the 2027 Notes outstanding at a fixed rate of 1.625%.
Credit Agreement
On September 26, 2022 (the “Third Restatement Effective Date”), the Company entered into a third amended and restated credit agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, swing line lender and letter of credit issuer.
After effectiveness of the Third Amendment described below, the borrowing capacity on the revolving credit facility under the Credit Agreement (the "Revolving Credit Facility") is $500.0 million, of which $162.5 million is scheduled to mature on November 7, 2024 and $337.5 million is scheduled to mature on January 12, 2028, and the term loans thereunder (the “Term Loans”) are scheduled to mature on January 12, 2028 (subject to, in certain circumstances, an earlier springing maturity).
In the first nine months of fiscal year 2024, the Company borrowed $70.0 million on the Revolving Credit Facility and repaid $272.4 million on the Term Loans. In the first nine months of fiscal year 2023, the Company borrowed $10.0 million and repaid $33.0 million on the Revolving Credit Facility. As of October 29, 2023, the Company had $622.6 million outstanding under the Term Loans and $220.0 million outstanding under the Revolving Credit Facility, which had undrawn borrowing capacity of $280.0 million, subject to customary conditions precedent, including the accuracy of representations and warranties and the absence of defaults.
Up to $40.0 million of the Revolving Credit Facility may be used to obtain letters of credit, up to $25.0 million of the Revolving Credit Facility may be used to obtain swing line loans, and up to $75.0 million of the Revolving Credit Facility may be used to obtain revolving loans and letters of credit in certain currencies other than U.S. Dollars (“Alternative Currencies”). The proceeds of the Revolving Credit Facility may be used by the Company for capital expenditures, permitted acquisitions, permitted dividends, working capital and general corporate purposes.
No amortization is required with respect to the revolving loans. Effective June 6, 2023, in connection with entering into a second amendment to the Credit Agreement, the Term Loans amortize (x) during the period that financial covenant relief is in effect (including during the extended covenant relief period provided pursuant to the Third Amendment), in equal quarterly installments of 1.875% of the aggregate principal amount outstanding on the Third Restatement Effective Date, and (y) otherwise, in equal quarterly installments of 1.25% of the aggregate principal amount outstanding on the Third Restatement Effective Date, with the balance due at maturity. The Company may voluntarily prepay borrowings at any time and from time to time, without premium or penalty, other than customary "breakage costs" in certain circumstances. In the third quarter of
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fiscal year 2024, the Company made a $250 million prepayment on the Term Loans in connection with the Third Amendment ("defined below"), after which there is no scheduled amortization remaining on the Term Loans.
All obligations of the Company under the Credit Agreement are unconditionally guaranteed by all of the Company’s direct and indirect domestic subsidiaries, other than certain excluded subsidiaries, including, but not limited to, any domestic subsidiary the primary assets of which consist of equity or debt of non-U.S. subsidiaries, certain immaterial non-wholly-owned domestic subsidiaries and subsidiaries that are prohibited from providing a guarantee under applicable law or that would require governmental approval to provide such guarantee. The Company and the guarantors have also pledged substantially all of their assets to secure their obligations under the Credit Agreement.
On October 19, 2023, the Company entered into the third amendment (the "Third Amendment") to the Credit Agreement, in order to, among other things, (i) extend the financial covenant relief period by one year to April 30, 2026, (ii) increase the maximum consolidated leverage ratio covenant for certain test periods as set forth in the Third Amendment, (iii) reduce the minimum consolidated interest coverage ratio covenant for certain test periods as set forth in the Third Amendment and (iv) make certain other changes as set forth therein. These amendments had the effect of extending and temporarily expanding financial covenant relief under the Credit Agreement previously provided for in a first amendment to the Credit Agreement entered into on February 24, 2023 and a second amendment to the Credit Agreement entered into on June 6, 2023.
Effective June 6, 2023, in connection with entering into a second amendment to the Credit Agreement, interest on loans made under the Credit Agreement in U.S. Dollars accrues, at the Company's option, at a rate per annum equal to (1) (x) the Base Rate (as defined in the Credit Agreement) plus (y) a margin ranging from 0.25% to 2.75% depending upon the Company’s consolidated leverage ratio (except that, during the period that financial covenant relief is in effect (including during the extended covenant relief period provided pursuant to the Third Amendment), the margin will not be less than 2.25% per annum) or (2) (x) Term SOFR Rate (as defined in the Credit Agreement) plus (y) a credit spread adjustment of (i) for term loans, 0.10% and (ii) for revolving credit borrowings, 0.11%, 0.26% or 0.43% for one, three and six month interest periods, respectively, plus (z) a margin ranging from 1.25% to 3.75% depending upon the Company's consolidated leverage ratio (except that, during the period that financial covenant relief pursuant to the Third Amendment is in effect, the margin will not be less than 3.25% per annum) (such margin, the "Applicable Margin"). Interest on loans made under the Revolving Credit Facility in Alternative Currencies accrues at a rate per annum equal to a customary benchmark rate (including, in certain cases, credit spread adjustments) plus the Applicable Margin.
The Credit Agreement contains customary representation and warranties, and affirmative and negative covenants, including limitations on the Company’s ability to, among other things, incur indebtedness, create liens on assets, engage in certain fundamental corporate changes, make investments, repurchase stock, pay dividends or make similar distributions, engage in certain affiliate transactions, or enter into agreements that restrict the Company's ability to create liens, pay dividends or make loan repayments. In addition, the Company must comply with financial covenants which, after effectiveness of the Third Amendment are as follows (in each case, during the covenant relief period):
maintaining a maximum consolidated leverage ratio, determined as of the last day of each fiscal quarter, of (i) 8.17 to 1.00 for the fiscal quarter ending on or around October 31, 2023, (ii) 10.27 to 1.00 for the fiscal quarter ending on or around January 31, 2024, (iii) 10.21 to 1.00 for the fiscal quarter ending on or around April 30, 2024, (iv) 9.93 to 1.00 for the fiscal quarter ending on or around July 31, 2024, (v) 8.42 to 1.00 for the fiscal quarter ending on or around October 31, 2024, (vi) 7.68 to 1.00 for the fiscal quarter ending on or around January 31, 2025, (vii) ) 6.75 to 1.00 for the fiscal quarter ending on or around April 30, 2025, (viii) 6.28 to 1.00 for the fiscal quarter ending on or around July 31, 2025, (ix) 5.81 to 1.00 for the fiscal quarter ending on or around October 31, 2025, (x) 5.30 to 1.00 for the fiscal quarter ending on or around January 31, 2026, and (xi) 3.75 to 1.00 for the fiscal quarter ending on or around April 30, 2026 and each fiscal quarter thereafter, subject to increase to 4.25 to 1.00 for the four full consecutive fiscal quarters ending on or after the date of consummation of a permitted acquisition that constitutes a "Material Acquisition" under the Credit Agreement, subject to the satisfaction of certain conditions;
maintaining a minimum consolidated interest expense coverage ratio, determined as of the last day of each fiscal quarter, of (i) 1.66 to 1.00 for the fiscal quarter ending on or around October 31, 2023, (ii) 1.40 to 1.00 for the fiscal quarter ending on or around January 31, 2024, (iii) 1.37 to 1.00 for the fiscal quarter ending on or around April 30, 2024, (iv) 1.41 to 1.00 for the fiscal quarter ending on or around July 31, 2024, (v) 1.73 to 1.00 for the fiscal quarter ending on or around October 31, 2024, (vi) 1.90 to 1.00 for the fiscal quarter ending on or around January 31, 2025, (vii) 2.14 to 1.00 for the fiscal quarter ending on or around April 30, 2025, (viii) 2.37 to 1.00 for the fiscal quarter ending on or around July 31, 2025, (ix) 2.68 to 1.00 for the fiscal quarter ending on or around October 31, 2025, (x) 3.01 to 1.00 for the fiscal quarter ending on or around January 31, 2026, and (xi) 3.50 to 1.00 for the fiscal quarter ending on or around April 30, 2026 and each fiscal quarter thereafter; and
until January 31, 2025, maintaining a minimum consolidated liquidity (as further defined in the Credit Agreement but excluding revolving credit commitments scheduled to expire in 2024) of $150 million as of the last day of each monthly accounting period of the Company.
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Upon the termination of the covenant relief period under the Third Amendment, the ratio levels set forth above with respect to the leverage and interest expense coverage financial covenants are subject to step-up as set forth in the Credit Agreement, and the liquidity covenant shall no longer apply.
Compliance with the leverage and interest expense coverage financial covenants is measured quarterly based upon the Company’s performance over the most recent four quarters, and compliance with the liquidity covenant is measured as of the last day of each monthly accounting period. As of October 29, 2023, the Company was in compliance with the financial covenants in the Credit Agreement. See “Liquidity” in Note 1, Organization and Basis of Presentation, for additional information about compliance with the financial covenants.
The Credit Agreement also contains customary provisions pertaining to events of default. If any event of default occurs, the obligations under the Credit Agreement may be declared due and payable, terminated upon written notice to us and existing letters of credit may be required to be cash collateralized.
The $100 million reduction in borrowing capacity of the Revolving Credit Facility in connection with the second amendment to the Credit Agreement, entered into on June 6, 2023, and the $250 million payment on the Term Loans in connection with the Third Amendment resulted in write-offs of deferred financing costs totaling $3.7 million and $4.4 million for the three and nine months ended October 29, 2023, respectively, which were included in "Interest expense" in the Statements of Operations.
In the first quarter of fiscal year 2024, the Company entered into an interest rate swap agreement with a 2.75 year term to hedge the variability of interest payments on $150.0 million of debt outstanding on the Term Loans at a Term SOFR rate of 3.58%, plus a variable margin and spread based on the Company’s consolidated leverage ratio.
In the fourth quarter of fiscal year 2023, the Company entered into an interest rate swap agreement with a 5 year term to hedge the variability of interest payments on $450.0 million of debt outstanding on the Term Loans at a Term SOFR rate of 3.44%, plus a variable margin and spread based on the Company’s consolidated leverage ratio.
In the first quarter of fiscal year 2021, the Company entered into an interest rate swap agreement with a 3 year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under the Company's Revolving Credit Facility at a LIBOR-referenced rate of 0.73%, plus a variable margin and spread based on the Company's consolidated leverage ratio. This interest rate swap agreement matured during the first quarter of 2024.
Convertible Senior Notes due 2027
On October 12, 2022 and October 21, 2022, the Company issued and sold $300.0 million and $19.5 million, respectively, in aggregate principal amount of 1.625% Convertible Senior Notes due 2027 (the "2027 Notes") in a private placement. The 2027 Notes were issued pursuant to an indenture, dated October 12, 2022, by and among the Company, the subsidiary guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee (the "2027 Indenture"). The 2027 Notes are jointly and severally and fully and unconditionally guaranteed by each of the Company’s current and future direct and indirect wholly-owned domestic subsidiaries that guarantee its borrowings under its Credit Agreement. The 2027 Notes bear interest at a rate of 1.625% per year, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2023. The 2027 Notes will mature on November 1, 2027, unless earlier converted, redeemed or repurchased.
The initial conversion rate of the 2027 Notes is 26.8325 shares of the Company's common stock per $1,000 principal amount of 2027 Notes (which is equivalent to an initial conversion price of approximately $37.27 per share). The conversion rate is subject to adjustment upon the occurrence of certain events specified in the 2027 Indenture but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a Make-Whole Fundamental Change (as defined in the 2027 Indenture) or if the Company delivers a Notice of Sale Price Redemption (as defined in the 2027 Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares of common stock as described in the 2027 Indenture for a holder who elects to convert its 2027 Notes in connection with such Make-Whole Fundamental Change or to convert its 2027 Notes called (or deemed called as provided in the 2027 Indenture) for redemption in connection with such Notice of Sale Price Redemption, as the case may be.
Prior to the close of business on the business day immediately preceding July 1, 2027, the 2027 Notes are convertible at the option of the holders thereof only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on January 29, 2023 (and only during such fiscal quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period in which, for each trading day of that period, the Trading Price (as defined in the 2027 Indenture), as determined following a request by a holder of the 2027 Notes in accordance with the procedures described in the 2027 Indenture, per $1,000 principal amount of the 2027 Notes for such trading day was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; (3) if the Company calls such 2027 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2027 Notes called (or deemed called as provided in the 2027 Indenture) for redemption; or (4)
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upon the occurrence of specified corporate events described in the 2027 Indenture. As of October 29, 2023, none of the conditions allowing holders of the 2027 Notes to convert had been met. On or after July 1, 2027 until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2027 Notes, holders of the 2027 Notes may convert all or a portion of their 2027 Notes, regardless of the foregoing conditions. Upon conversion, the 2027 Notes will be settled in cash up to the aggregate principal amount of the 2027 Notes to be converted, and in cash, shares of the Company's common stock or any combination thereof, at the Company’s option, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2027 Notes being converted.
The Company may not redeem the 2027 Notes prior to November 5, 2025. The Company may redeem for cash all or any portion of the 2027 Notes (subject to the limitation described below), at the Company’s option, on or after November 5, 2025 and before the 61st scheduled trading day immediately preceding the maturity date if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides the related notice of sale price redemption, at a redemption price equal to 100% of the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company redeems less than all the outstanding 2027 Notes, at least $75.0 million aggregate principal amount of the 2027 Notes must be outstanding and not subject to redemption as of the relevant redemption notice date. No sinking fund is provided for the 2027 Notes.
Upon the occurrence of a Fundamental Change (as defined in the 2027 Indenture) prior to the maturity date of the 2027 Notes, holders of the 2027 Notes may require the Company to repurchase all or a portion of the 2027 Notes for cash at a price equal to 100% of the principal amount of the 2027 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the Fundamental Change Repurchase Date (as defined in the 2027 Indenture).
Convertible Note Hedge Transactions
On October 6, 2022 and October 19, 2022, the Company entered into privately negotiated convertible note hedge transactions (the “Convertible Note Hedge Transactions”) with an affiliate of one of the initial purchasers of the 2027 Notes and another financial institution (collectively, the “Counterparties”) whereby the Company has the option to purchase the same number of shares of the Company’s common stock initially underlying the 2027 Notes in the aggregate for approximately $37.27 per share, which is subject to anti-dilution adjustments substantially similar to those in the 2027 Notes. The Convertible Note Hedge Transactions will expire upon the maturity of the 2027 Notes, if not earlier exercised. The Convertible Note Hedge Transactions are expected to reduce the potential dilution to the common stock upon the conversion of the 2027 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2027 Notes, as the case may be, in the event that the market price per share of common stock, as measured under the terms of the Convertible Note Hedge Transactions, is greater than the strike price of the Convertible Note Hedge Transactions, which initially corresponds to the initial conversion price of the 2027 Notes, or approximately $37.27 per share of the common stock. The Convertible Note Hedge Transactions are separate transactions, entered into by the Company with each of the Counterparties, and are not part of the terms of the 2027 Notes. Holders of the 2027 Notes do not have any rights with respect to the Convertible Note Hedge Transactions. The Company used approximately $72.6 million of the net proceeds from the offering of the 2027 Notes to pay the cost of the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions are recorded in additional paid-in capital in the Balance Sheets as they do not require classification outside of equity pursuant to ASC 480 and qualify for equity classification pursuant to ASC 815.
Warrant Transactions
On October 6, 2022 and on October 19, 2022, the Company separately entered into privately negotiated warrant transactions (the “Warrants”) with the Counterparties whereby the holders of the Warrants have the option to acquire, collectively, subject to anti-dilution adjustments, approximately 8.6 million shares of the Company’s common stock at an initial strike price of approximately $51.15 per share. The Warrants were sold in private placements to the Counterparties pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), afforded by Section 4(a)(2) of the Securities Act. If the market price per share of the common stock, as measured under the terms of the Warrants, exceeds the strike price of the Warrants, the Warrants could have a dilutive effect on the common stock, unless the Company elects, subject to certain conditions, to settle the Warrants in cash. The Warrants will expire over a period beginning in February 2028.
The Warrants are separate transactions, entered into by the Company with each of the Counterparties, and are not part of the terms of the 2027 Notes. Holders of the 2027 Notes do not have any rights with respect to the Warrants. The Company received aggregate proceeds of approximately $42.9 million from the sale of the Warrants to the Counterparties. The Warrants are recorded in additional paid-in capital in the Balance Sheets as they do not require classification outside of equity pursuant to ASC 480 and qualify for equity classification pursuant to ASC 815.
In combination, the Convertible Note Hedge Transactions and the Warrants are intended to synthetically increase the strike price of the conversion option of the 2027 Notes from approximately $37.27 to $51.15 (subject to adjustment in accordance
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with the terms of the agreements governing such transactions), with the expected result of reducing the dilutive effect of the 2027 Notes in exchange for a net cash premium of $29.7 million.
Convertible Senior Notes due 2028
On October 26, 2023, the Company issued and sold $250.0 million in aggregate principal amount of 4.00% Convertible Senior Notes due 2028 (the "2028 Notes") in a private placement. The 2028 Notes were issued pursuant to an indenture, dated October 26, 2023, by and among the Company, the subsidiary guarantors party thereto and U.S. Bank Trust Company, National Association, as trustee (the "2028 Indenture"). The 2028 Notes are jointly and severally and fully and unconditionally guaranteed by each of the Company’s current and future direct and indirect wholly-owned domestic subsidiaries that guarantee its borrowings under its Credit Agreement. The 2028 Notes bear interest at a rate of 4.00% per year, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2024. The 2028 Notes will mature on November 1, 2028, unless earlier converted, redeemed or repurchased.
The initial conversion rate of the 2028 Notes is 49.0810 shares of the Company's common stock per $1,000 principal amount of 2028 Notes (which is equivalent to an initial conversion price of approximately $20.37 per share). The conversion rate is subject to adjustment upon the occurrence of certain events specified in the 2028 Indenture but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a Make-Whole Fundamental Change (as defined in the 2028 Indenture) or if the Company delivers a Notice of Redemption (as defined in the 2028 Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares of common stock as described in the 2028 Indenture for a holder who elects to convert its 2028 Notes in connection with such Make-Whole Fundamental Change or to convert its 2028 Notes called (or deemed called as provided in the 2028 Indenture) for redemption in connection with such Notice of Redemption, as the case may be.
Prior to the close of business on the business day immediately preceding August 1, 2028, the 2028 Notes will be convertible at the option of the holders thereof only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on January 28, 2024 (and only during such fiscal quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period in which, for each trading day of that period, the Trading Price (as defined in the 2028 Indenture), as determined following a request by a holder of the 2028 Notes in accordance with the procedures described in the Indenture, per $1,000 principal amount of the 2028 Notes for such trading day was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; (3) if the Company calls such 2028 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the 2028 Notes called (or deemed called as provided in the 2028 Indenture) for redemption; or (4) upon the occurrence of specified corporate events described in the 2028 Indenture. As of October 29, 2023, none of the conditions allowing holders of the 2028 Notes to convert had been met. On or after August 1, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date of the 2028 Notes, holders of the 2028 Notes may convert all or a portion of their 2028 Notes, regardless of the foregoing conditions. Upon conversion, the 2028 Notes will be settled in cash up to the aggregate principal amount of the 2028 Notes to be converted, and in cash, shares of the Company's common stock or any combination thereof, at the Company’s option, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2028 Notes being converted.
The Company may not redeem the 2028 Notes prior to November 5, 2026. The Company may redeem for cash all or any portion of the 2028 Notes (subject to the limitation described below), at the Company’s option, on or after November 5, 2026 and before the 41st scheduled trading day immediately preceding the maturity date if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides the related notice of sale price redemption, at a redemption price equal to 100% of the principal amount of the 2028 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company redeems less than all the outstanding 2028 Notes, at least $75.0 million aggregate principal amount of the 2028 Notes must be outstanding and not subject to redemption as of the relevant redemption notice date. No sinking fund is provided for the 2028 Notes.
Upon the occurrence of a Fundamental Change (as defined in the 2028 Indenture) prior to the maturity date of the 2028 Notes, holders of the 2028 Notes may require the Company to repurchase all or a portion of the 2028 Notes for cash at a price equal to 100% of the principal amount of the 2028 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the Fundamental Change Repurchase Date (as defined in the 2028 Indenture).
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Debt Commitment Letter
In connection with the Sierra Wireless Acquisition (see Note 2, Acquisition and Divestiture), the Company entered into a commitment letter, dated as of August 2, 2022 (the “Commitment Letter”) with JPMorgan Chase Bank, N.A. (“JPM”), pursuant to which JPM committed to provide (a) a backstop of certain amendments to the Company's then-existing Credit Agreement and (b) a 364-day bridge loan facility in the aggregate principal amount of $1.2 billion (the "Bridge Commitment"), subject to certain mandatory commitment reductions customary for a bridge loan facility. During the third quarter of fiscal year 2023, the amendments and restatement of the Credit Agreement disclosed above and the issuance of the 2027 Notes disclosed above occurred to replace the backstop commitment and the Bridge Commitment.
Interest Expense
Interest expense was comprised of the following components for the periods presented:
 Three Months EndedNine Months Ended
(in thousands)October 29, 2023October 30, 2022October 29, 2023October 30, 2022
Contractual interest$25,566 $2,207 $70,963 $4,423 
Interest swap agreement(2,773)(732)(7,363)(733)
Amortization of deferred financing costs1,837 279 4,940 520 
Write-off of deferred financing costs3,675— 4,446 — 
Debt commitment fee (1)
— 7,255 — 7,255 
Total interest expense$28,305 $9,009 $72,986 $11,465 
(1) One-time fee incurred in connection with the Commitment Letter disclosed above.
As of October 29, 2023, there were no amounts outstanding under the letters of credit, swing line loans and alternative currency sub-facilities.
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Note 10: Income Taxes
The Company’s effective tax rate differs from the statutory federal income tax rate of 21% primarily due to the regional mix of income, changes in valuation allowance, the non-deductibility of goodwill impairment charges, and research and development ("R&D") tax credits. The Tax Cuts and Jobs Act requires R&D costs incurred for tax years beginning after December 31, 2021 to be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on where the research activities are conducted. The Company has elected to treat global intangible low-taxed income ("GILTI") as a period cost and the additional capitalization of R&D costs within GILTI increases the Company's provision for income taxes.
During the second quarter of fiscal year 2024, the Company determined utilization of its net deferred tax assets ("DTAs") in the United States ("U.S.") was limited, and accordingly recorded an increase to its valuation allowance reserve of $52.8 million. This determination was made after evaluating both the positive and negative evidence regarding the recoverability of the Company’s net U.S. DTAs. Significant negative evidence that led to this conclusion included substantial cumulative GAAP financial losses, goodwill impairment (as discussed in Note 8, Goodwill and Intangible Assets), and in the absence of additional actions, the Company's inability to maintain compliance with the financial covenants over the next twelve months from the issuance of the accompanying interim unaudited condensed consolidated financial statements (as discussed in Note 1, Organization and Basis of Presentation). The amount of the DTA considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as the Company’s projections for future growth.
The Company uses a two-step approach to recognize and measure uncertain tax positions ("UTP"). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (before the federal impact of state items) is as follows:
(in thousands)
Balance at January 29, 2023$31,471 
Additions based on tax positions related to the current fiscal year 834 
Decreases based on tax positions related to prior fiscal years(846)
Balance at October 29, 2023$31,459 
Included in the balance of gross unrecognized tax benefits at October 29, 2023 and January 29, 2023 are $12.4 million and $12.6 million, respectively, of net tax benefits (after the federal impact of state items), that, if recognized, would impact the effective tax rate, prior to consideration of any required valuation allowance.
The liability for UTP is reflected in the Balance Sheets as follows:        
(in thousands)October 29, 2023January 29, 2023
Deferred tax assets - non-current$17,620 $17,446 
Other long-term liabilities12,443 12,641 
Total accrued taxes$30,063 $30,087 
The Company’s policy is to include net interest and penalties related to unrecognized tax benefits in the "(Benefit) provision for income taxes" in the Statements of Operations.
Tax years prior to 2013 (the Company’s fiscal year 2014) are generally not subject to examination by the U.S. Internal Revenue Service except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. For state returns in the U.S., the Company is generally not subject to income tax examinations for calendar years prior to 2012 (the Company’s fiscal year 2013). The Company has a significant tax presence in Switzerland for which Swiss tax filings have been examined through fiscal year 2020. The Company is also subject to routine examinations by various foreign tax jurisdictions in which it operates. The Company believes that adequate provisions have been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with the Company's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
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The Company’s regional (loss) income from continuing operations before taxes and equity method (loss) income was as follows:
 Three Months EndedNine Months Ended
(in thousands)October 29, 2023October 30, 2022October 29, 2023October 30, 2022
Domestic$21,165 $(52,087)$(71,146)$(39,084)
Foreign(59,717)81,193 (324,632)177,615 
Total$(38,552)$29,106 $(395,778)$138,531 
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Note 11: Leases
The Company has operating leases for real estate, vehicles, and office equipment, which are accounted for in accordance with ASC 842, "Leases." Real estate leases are used to secure office space for the Company's administrative, engineering, production support and manufacturing activities. The Company's leases have remaining lease terms of up to approximately ten years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year.
The components of lease expense were as follows:
Three Months EndedNine Months Ended
(in thousands)October 29, 2023October 30, 2022October 29, 2023October 30, 2022
Operating lease cost$2,181 $1,449 $6,497 $4,349 
Short-term lease cost380 334 1,473 1,082 
Sublease income(163)(33)(483)(102)
Total lease cost$2,398 $1,750 $7,487 $5,329 
Supplemental cash flow information related to leases was as follows:
Nine Months Ended
(in thousands)October 29, 2023October 30, 2022
Cash paid for amounts included in the measurement of lease liabilities$6,415 $4,079 
Right-of-use assets obtained in exchange for new operating lease liabilities$3,050 $2,050 
October 29, 2023
Weighted-average remaining lease term–operating leases (in years)5.5
Weighted-average discount rate on remaining lease payments–operating leases6.9 %
Supplemental balance sheet information related to leases was as follows:
(in thousands)October 29, 2023January 29, 2023
Operating lease right-of-use assets in "Other assets"$29,300 $31,807 
Operating lease liabilities in "Accrued liabilities"$6,187 $6,209 
Operating lease liabilities in "Other long-term liabilities"23,403 26,484 
Total operating lease liabilities$29,590 $32,693 
Maturities of lease liabilities as of October 29, 2023 are as follows:
(in thousands)
Fiscal Year Ending:
2024 (remaining three months)$2,036 
20258,284 
20266,907 
20275,097 
20284,481 
Thereafter9,299 
Total lease payments36,104 
Less: imputed interest(6,514)
Total$29,590 

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Note 12: Commitments and Contingencies
Legal Matters
In accordance with ASC 450-20, "Loss Contingencies," the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. The Company also discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if material and if the amount can be reasonably estimated. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. However, for liabilities that are reasonably possible but not probable, the Company discloses the amount of reasonably possible loss or range of reasonably possible loss, if material and if the amount can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued, and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are indeterminate, (ii) if the proceedings are in early stages, (iii) if there is uncertainty as to the outcome of pending appeals, motions or settlements, (iv) if there are significant factual issues to be determined or resolved, and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any.
Because the outcomes of litigation and other legal matters are inherently unpredictable, the Company’s evaluation of legal matters or proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. While the consequences of certain unresolved matters and proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss or range of loss for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material adverse effect on the Company’s earnings in any given reporting period. However, in the opinion of management, after consulting with legal counsel, any ultimate liability related to current outstanding claims and lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s consolidated financial statements, as a whole. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control.
As such, even though the Company intends to vigorously defend itself with respect to its legal matters, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company’s business, financial condition, operating results, or cash flows.
From time to time, the Company is involved in various claims, litigation, and other legal actions that are normal to the nature of its business, including with respect to intellectual property, contract, product liability, employment, and environmental matters. In the opinion of management, after consulting with legal counsel, any ultimate liability related to current outstanding claims and lawsuits, individually or in the aggregate, is not expected to have a material adverse effect on the Company’s consolidated financial statements, as a whole.
On June 14, 2022, Denso Corporation, and several of its affiliates (collectively "Denso"), filed a complaint against Sierra Wireless and several of its affiliates ("Sierra Entities") in the Superior Court of California, County of San Diego. Denso asserts eight causes of action, including claims for breach of express and implied warranties, equitable indemnification, negligent and intentional misrepresentation, unjust enrichment, promissory estoppel, and declaratory judgment, based on an alleged defect related to the GPS week number rollover date. Denso alleges that it incurred in excess of $84 million in damages and costs to implement a firmware update provided by Sierra Entities' supplier in late 2018, before Sierra Wireless disposed of the automotive business, to address the alleged product defect. Denso filed an amended complaint on September 23, 2022, asserting essentially the same eight causes of action. After briefing on a demurrer and initial discovery, the parties' reached a settlement agreement on September 18, 2023 for an amount that has been accrued in "Selling, general and administrative expense" in the Statements of Operations, with payments to be made in four quarterly installments commencing on or before September 30, 2023.
On March 25, 2022, Harman Becker Automotive Systems GmbH, and several of its affiliates (collectively "Harman"), filed a complaint against certain Sierra Entities in the District Court of Munich, Germany. Harman asserts claims that the Sierra Entities, in connection with the delivery of certain modules by the Sierra Entities, violated a frame supply agreement, a quality assurance agreement and the United Nations Convention on Contracts for the International Sales of Goods. Harman alleges that it incurred approximately $16 million in damages and costs, the bulk of which amount related to settling with a customer that had to implement a firmware update provided by Sierra Entities' supplier in late 2018, before Sierra Wireless disposed of the automotive business, to address the alleged product defect. Since the case is at an early stage, at this time, the Company is unable to form a conclusion as to the likelihood of an unfavorable outcome or the amount or range of any possible loss resulting from the alleged claims. The Company intends to defend the claims vigorously.
Environmental Matters
The Company vacated a former facility in Newbury Park, California in 2002, but continues to address groundwater and soil contamination at the site. The Company’s efforts to address site conditions have been at the direction of the Los Angeles Regional Water Quality Control Board (“RWQCB”). In October 2013, an order was issued including a scope of proposed additional site work, monitoring, and remediation activities. The Company has been complying with RWQCB orders and direction, and continues to implement an approved remedial action plan addressing the soil, groundwater, and soil vapor at the site. 
The Company has accrued liabilities where it is probable that a loss will be incurred and the cost or amount of loss can be reasonably estimated. Based on the latest determinations by the RWQCB and the most recent actions taken pursuant to the remedial action plan, the Company estimates the total range of probable loss between $7.9 million and $9.4 million. To date, the Company has made $6.3 million in payments towards the remedial action plan. As of October 29, 2023, the estimated range of probable loss remaining was between $1.6 million and $3.1 million. Given the uncertainties associated with environmental assessment and the remediation activities, the Company is unable to determine a best estimate within the range of loss. Therefore, the Company has recorded the minimum amount of probable loss and as of October 29, 2023, has a remaining accrual of $1.6 million related to this matter. These estimates could change as a result of changes in planned remedial actions, further actions from the regulatory agency, remediation technology, and other factors.
Indemnification
The Company has entered into agreements with its current and former executives and directors indemnifying them against certain liabilities incurred in connection with the performance of their duties. The Company’s Certificate of Incorporation and Bylaws also contain indemnification obligations with respect to the Company’s current directors and employees.
The Company is a party to a variety of agreements in the ordinary course of business under which the Company may be obligated to indemnify a third party with respect to certain matters. The impact on the Company's future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the final outcome of any claims and whether claims will be made.
Product Warranties
The Company’s general warranty policy provides for repair or replacement of defective parts. In some cases, a refund of the purchase price is offered. In certain instances, the Company has agreed to other or additional warranty terms, including indemnification provisions.
The product warranty accrual reflects the Company’s best estimate of probable liability under its product warranties. The Company accrues for known warranty issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified issues based on historical experience. Historically, warranty expense and the related accrual has been immaterial to the Company’s consolidated financial statements.
Licenses
Under certain license agreements, the Company is committed to make royalty payments based on the sales of products using certain technologies. The Company recognizes royalty obligations as determinable in accordance with agreement terms.
Deferred Compensation
The Company maintains a deferred compensation plan for certain officers and key executives that allows participants to defer a portion of their compensation for future distribution at various times permitted by the plan. This plan provides for a discretionary Company match up to a defined portion of the employee's deferral, with any match subject to a defined vesting schedule.
The Company's liability for the deferred compensation plan is presented below:
(in thousands)October 29, 2023January 29, 2023
Accrued liabilities$9,684 $4,714 
Other long-term liabilities30,125 37,563 
Total deferred compensation liabilities under this plan$39,809 $42,277 
The Company has purchased whole life insurance on the lives of certain current deferred compensation plan participants. This corporate-owned life insurance is held in a grantor trust and is intended to cover a majority of the Company's costs of the deferred compensation plan.
The cash surrender value of the Company's corporate owned life insurance is presented below:
(in thousands)October 29, 2023January 29, 2023
Other current assets$7,043 $— 
Other assets23,982 33,676 
Total cash surrender value of corporate-owned life insurance$31,025 $33,676 
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Note 13: Restructuring
The Company has undertaken structural reorganization actions to reduce its workforce as a result of cost-saving measures and internal resource alignment including from the realization of synergies of the Sierra Wireless Acquisition. The Company also implemented a separate reduction in workforce plan that commenced during the second quarter of fiscal year 2024 and was substantially completed during the third quarter of fiscal year 2024. These reorganization actions resulted in total restructuring charges of $3.6 million and $15.5 million in the three and nine months ended October 29, 2023, respectively. The Company had restructuring charges of $2.4 million during each of the three and nine months ended October 30, 2022. Restructuring related liabilities are included in "Accrued liabilities" in the Balance Sheets.
Restructuring activity is summarized as follows:
(in thousands)One-time employee termination benefitsOther restructuringTotal
Balance at January 29, 2023$4,027 $12 $4,039 
Charges (1)
13,129 2,338 15,467 
Cash payments(11,311)(2,003)(13,314)
Balance at October 29, 2023$5,845 $347 $6,192 
(1) Restructuring charges include $0.2 million and $6.0 million during the three and nine months ended October 29, 2023, respectively, related to the reduction in workforce plan that commenced during the second quarter of fiscal year 2024.
Restructuring charges were included in the Statements of Operations as follows:
Three Months EndedNine Months Ended
(in thousands)October 29, 2023October 30, 2022October 29, 2023October 30, 2022
Cost of sales$— $128 $859 $128