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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 30, 2022
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: (805498-2111
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 November 25, 2022: 63,837,729



SEMTECH CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 30, 2022
 
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 failure to obtain regulatory approvals required for the closing of the proposed acquisition of Sierra Wireless, Inc. ("Sierra Wireless"); the failure to satisfy the conditions to the closing of the proposed acquisition; potential legal proceedings relating to the proposed acquisition and the outcome of any such legal proceeding; the inherent risks, costs and uncertainties associated with integrating the businesses successfully and risks of not achieving all or any of the anticipated benefits of the proposed acquisition, or the risk that the anticipated benefits of the proposed acquisition may not be fully realized or take longer to realize than expected; the occurrence of any event, change or other circumstances that could give rise to the termination of the arrangement agreement with Sierra Wireless; the risk that the proposed acquisition will not be consummated within the expected time period, or at all; future responses to and effects of the ongoing COVID-19 pandemic or other similar health crises; 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 the current conflict between Russia and Ukraine; 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; and the Company's ability to forecast and achieve anticipated net sales and earnings estimates in light of periodic economic uncertainty, including impacts arising from Asian, European and global economic dynamic; and those factors set forth under "Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2022 filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2022 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.
3


PART I - FINANCIAL INFORMATION
 
ITEM 1.Financial Statements

SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
 
 Three Months EndedNine Months Ended
 October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Net sales$177,618 $194,932 $589,021 $550,308 
Cost of sales62,049 71,243 207,380 206,326 
Gross profit115,569 123,689 381,641 343,982 
Operating costs and expenses, net:
Selling, general and administrative42,366 47,621 133,849 128,402 
Product development and engineering35,161 37,346 114,551 109,633 
Intangible amortization1,000 1,298 3,096 3,894 
Gain on sale of business(327) (18,313) 
Total operating costs and expenses, net78,200 86,265 233,183 241,929 
Operating income37,369 37,424 148,458 102,053 
Interest expense(9,009)(1,233)(11,465)(3,617)
Non-operating income, net775 105 1,162 412 
Investment impairments and credit loss reserves, net(29)(216)376 (930)
Income before taxes and equity in net (losses) gains of equity method investments29,106 36,080 138,531 97,918 
Provision for income taxes6,327 3,018 26,415 9,179 
Net income before equity in net (losses) gains of equity method investments22,779 33,062 112,116 88,739 
Equity in net (losses) gains of equity method investments(36)1,363 271 2,115 
Net income22,743 34,425 112,387 90,854 
Net loss attributable to noncontrolling interest(3)(2)(6)(6)
Net income attributable to common stockholders$22,746 $34,427 $112,393 $90,860 
Earnings per share:
Basic$0.36 $0.53 $1.76 $1.40 
Diluted$0.36 $0.53 $1.76 $1.38 
Weighted-average number of shares used in computing earnings per share:
Basic63,764 64,546 63,738 64,786 
Diluted63,855 65,299 64,040 65,664 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
4


SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
  Three Months EndedNine Months Ended
 October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Net income $22,743 $34,425 $112,387 $90,854 
Other comprehensive (loss) income, net:
Unrealized (loss) gain on foreign currency cash flow hedges, net(382) 164  
Reclassifications of realized loss (gain) on foreign currency cash flow hedges, net to net income72  (69) 
Unrealized gain (loss) on interest rate cash flow hedges, net505 (388)2,069 341 
Reclassifications of realized (gain) loss on interest rate cash flow hedges, net to net income(625)923 (680)557 
Reclassification of cumulative translation gain to net income  (48) 
Change in defined benefit plans, net22 158 68 472 
Other comprehensive (loss) income, net(408)693 1,504 1,370 
Comprehensive income22,335 35,118 113,891 92,224 
Comprehensive loss attributable to noncontrolling interest(3)(2)(6)(6)
Comprehensive income attributable to common stockholders$22,338 $35,120 $113,897 $92,230 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.









5


SEMTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
October 30, 2022January 30, 2022
Assets
Current assets:
Cash and cash equivalents$617,801 $279,601 
Accounts receivable, less allowances of $844 and $747, respectively
80,539 71,507 
Inventories111,083 114,003 
Prepaid taxes2,758 5,983 
Other current assets23,051 31,201 
Total current assets835,232 502,295 
Non-current assets:
Property, plant and equipment, net of accumulated depreciation of $259,308 and $254,764, respectively
135,571 134,940 
Deferred tax assets24,898 27,803 
Goodwill350,306 351,141 
Other intangible assets, net3,708 6,804 
Other assets117,136 107,928 
TOTAL ASSETS$1,466,851 $1,130,911 
Liabilities and Equity
Current liabilities:
Accounts payable$45,072 $50,695 
Accrued liabilities95,021 77,704 
Total current liabilities140,093 128,399 
Non-current liabilities:
Deferred tax liabilities1,075 1,132 
Long-term debt455,113 171,676 
Other long-term liabilities77,973 91,929 
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 63,837,729 outstanding and 78,136,144 issued and 64,098,565 outstanding, respectively
785 785 
Treasury stock, at cost, 14,298,415 shares and 14,037,579 shares, respectively
(579,268)(549,942)
Additional paid-in capital462,213 491,956 
Retained earnings909,253 796,860 
Accumulated other comprehensive loss(571)(2,075)
Total stockholders’ equity792,412 737,584 
Noncontrolling interest185 191 
Total equity792,597 737,775 
TOTAL LIABILITIES AND EQUITY$1,466,851 $1,130,911 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
6


SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(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 reissued321,388 — 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 reissued501,257 — 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.



7



SEMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)

Three Months Ended October 31, 2021
Common StockAccumulated Other Comprehensive Loss
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at August 1, 202164,396,741 $785 $(499,199)$486,693 $727,629 $(7,491)$708,417 $206 $708,623 
Net income— — — — 34,427 — 34,427 (2)34,425 
Other comprehensive income— — — — — 693 693 — 693 
Share-based compensation— — — 13,289 — — 13,289 — 13,289 
Repurchase of common stock(387,163)— (30,000)— — — (30,000)— (30,000)
Treasury stock reissued389,663 — 9,589 (18,221)— — (8,632)— (8,632)
Balance at October 31, 202164,399,241 $785 $(519,610)$481,761 $762,056 $(6,798)$718,194 $204 $718,398 

Nine Months Ended October 31, 2021
Common StockAccumulated Other Comprehensive Loss
Number of Shares OutstandingAmountTreasury Stock, at CostAdditional Paid-in CapitalRetained EarningsStockholders’ EquityNoncontrolling InterestTotal Equity
Balance at January 31, 202165,098,379 $785 $(438,798)$473,728 $671,196 $(8,168)$698,743 $210 $698,953 
Net income— — — — 90,860 — 90,860 (6)90,854 
Other comprehensive income— — — — — 1,370 1,370 — 1,370 
Share-based compensation— — — 37,819 — — 37,819 — 37,819 
Repurchase of common stock(1,387,624)— (97,000)— — — (97,000)— (97,000)
Treasury stock reissued688,486 — 16,188 (29,786)— — (13,598)— (13,598)
Balance at October 31, 202164,399,241 $785 $(519,610)$481,761 $762,056 $(6,798)$718,194 $204 $718,398 
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 30, 2022October 31, 2021
Cash flows from operating activities:
Net income$112,387 $90,854 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization22,321 22,686 
Amortization of right-of-use assets3,475 3,289 
Investment impairments and credit loss reserves, net(376)930 
Accretion of deferred financing costs and debt discount520 361 
Deferred income taxes2,383 (1,540)
Share-based compensation27,228 40,697 
Gain on disposition of business operations and assets(18,256)(34)
Equity in net gains of equity method investments(271)(2,115)
Corporate-owned life insurance, net23 4,720 
Changes in assets and liabilities:
Accounts receivable, net(9,032)(3,880)
Inventories(3,470)(17,665)
Other assets4,170 8,130 
Accounts payable(3,430)(3,325)
Accrued liabilities12,127 15,816 
Other liabilities(4,289)(6,787)
Net cash provided by operating activities145,510 152,137 
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment33 82 
Purchase of property, plant and equipment(22,643)(18,081)
Proceeds from sale of investments2,275  
Purchase of investments(6,748)(5,832)
Proceeds from sale of business, net of cash disposed26,322  
Proceeds from corporate-owned life insurance5,065  
Premiums paid for corporate-owned life insurance(5,065)(6,000)
Net cash used in investing activities(761)(29,831)
Cash flows from financing activities:
Proceeds from revolving line of credit10,000 20,000 
Payments of revolving line of credit(33,000)(24,000)
Proceeds from convertible senior notes319,500  
Proceeds from sale of warrants42,909  
Purchase of convertible note hedge(72,559) 
Deferred financing costs(10,253) 
Payment for employee share-based compensation payroll taxes(13,766)(17,885)
Proceeds from exercise of stock options620 4,287 
Repurchase of common stock(50,000)(97,000)
Net cash provided by (used in) financing activities193,451 (114,598)
Net increase in cash and cash equivalents338,200 7,708 
Cash and cash equivalents at beginning of period279,601 268,891 
Cash and cash equivalents at end of period$617,801 $276,599 
Supplemental disclosure of cash flow information:
Interest paid$10,267 $3,237 
Income taxes paid$8,749 $2,989 
Non-cash investing and financing activities:
Accounts payable related to capital expenditures$3,803 $2,424 
Conversion of notes into equity$ $626 
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
9


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 leading global supplier of high performance analog and mixed-signal semiconductors and advanced algorithms. The end customers for the Company’s products are primarily original equipment manufacturers that produce and sell electronics.
Fiscal Year
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 2023 and 2022 each consisted of 13 weeks.
Principles of Consolidation
The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted 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 30, 2022 ("Annual Report"). The Company’s interim unaudited condensed consolidated statements of income are referred to herein as the "Statements of Income." The Company’s interim unaudited condensed consolidated balance sheets are referred to herein as the "Balance Sheets" and interim unaudited condensed consolidated statements of cash flows 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 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.
Accounting Guidance Issued, but not yet Adopted as of October 30, 2022
In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2021-08, “Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistencies related to recognition of an acquired contract liability, and to payment terms and their effect on subsequent revenue recognized by the acquirer. Among other changes, this ASU requires that an acquirer account for acquired revenue contracts in accordance with Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers," as if it had originated the contracts. If the acquirer is unable to assess or rely on how the acquiree applied ASC 606, the acquirer should consider the terms of the acquired contracts as of the contract inception or contract modification date in applying ASC 606 to determine what should be recorded at the acquisition date. The amendments also provide certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06 ("ASU 2020-06"), which amends the accounting standards for convertible debt instruments that may be settled entirely or partially in cash upon conversion. ASU 2020-06 eliminates requirements to separately account for liability and equity components of such convertible debt instruments and eliminates the ability to use the treasury stock method for calculating diluted earnings per share for convertible instruments whose principal amount may be settled using shares. Instead, ASU 2020-06 requires (i) the entire amount of the security to be presented as a liability on the balance sheet and (ii) application of the "if-converted" method for calculating diluted earnings per share. Under the "if-
10


converted" method, diluted earnings per share will generally be calculated assuming that all of the notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive. However, if the principal amount of the convertible debt security being converted is required to be paid in cash and only the excess is permitted to be settled in shares, the if-converted method will produce a similar result as the "treasury stock" method prior to the adoption of ASU 2020-06 for such convertible debt security.
The amendments are effective for the Company's annual and interim reporting periods beginning after December 15, 2021, with early adoption permitted for reporting periods beginning after December 15, 2020. The guidance can be applied on a full retrospective basis to all periods presented or a modified retrospective basis with a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. The Company adopted ASU 2020-06 as of January 31, 2022 and recorded the issuance of its 1.625% Convertible Senior Notes due 2027 (the "Notes") at their face value net of issuance costs in "Other long-term liabilities" and the value of the associated convertible note hedge and warrants in "Additional paid-in capital" in the Balance Sheets. The Company did not bifurcate the liability and equity components of the Notes in its Balance Sheets, and uses the if-converted method of calculating diluted earnings per share. Because the principal amount of the Notes upon conversion is required to be paid in cash, and only the excess is permitted to be settled in shares, the application of the if-converted method will produce a similar result as the treasury stock method prior to the adoption of ASU 2020-06. The effect of the treasury stock method is that the shares issuable upon conversion of the Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Notes exceeds their principal amount. There were no changes to the Company’s previously issued financial statements as the Company had no existing convertible notes prior to issuance of the Notes. See Note 9, Long-Term Debt, for further discussion of the Notes.


11


Note 2: Acquisition and Divestiture
Proposed Transaction with Sierra Wireless, Inc.
Arrangement Agreement
On August 2, 2022, the Company entered into an Arrangement Agreement (the “Arrangement Agreement”) with Sierra Wireless, Inc., a corporation existing under the Canada Business Corporations Act (“Sierra Wireless”), and 13548597 Canada Inc., a corporation formed under the Canada Business Corporations Act and the Company's wholly owned subsidiary (“Purchaser”), pursuant to which, among other things, Purchaser will acquire all of the issued and outstanding common shares of Sierra Wireless (the “Arrangement”). The Arrangement will be implemented by way of a plan of arrangement (the “Plan of Arrangement”) in accordance with the Canada Business Corporations Act. On the terms and subject to the conditions of the Arrangement Agreement and the Plan of Arrangement, at the effective date of the Arrangement (the “Effective Date”), each common share of Sierra Wireless that is issued and outstanding immediately prior to the Effective Date will be transferred to the Purchaser in consideration for the right to receive $31.00 USD per share of Sierra Wireless’ common shares, in an all-cash transaction representing total purchase consideration of approximately $1.2 billion.
On September 27, 2022, the securityholders of Sierra Wireless approved the Arrangement and on September 29, 2022, the Supreme Court of British Columbia issued its final order approving the Arrangement. In addition, on October 3, 2022, the Company received a no action letter from the Canadian Competition Bureau satisfying the Competition Act approval condition to closing. The closing of the Arrangement remains subject to customary closing conditions, including: (i) receipt of regulatory approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), from the U.S. Department of Justice (the “DOJ”); (ii) the absence of any law, injunction or other governmental order that prohibits the consummation of the Arrangement; and (iii) other customary closing conditions, including the accuracy of the other party’s representations and warranties (subject to certain materiality qualifications), and each party’s compliance with its covenants and agreements contained in the Arrangement Agreement.
On October 17, 2022, each of the Company and Sierra Wireless received a request for additional information and documentary material (commonly known as a “second request”) from the DOJ in connection with the proposed transaction. The second requests were issued under notification requirements of the HSR Act. Issuance of the second requests extends the waiting period under the HSR Act until 30 days after the Company and Sierra Wireless have substantially complied with the second requests, unless that period is extended voluntarily by the parties or otherwise terminated by the DOJ. The parties are working to close the transaction as expeditiously as possible, within the timeframe initially provided under the Arrangement Agreement, which (inclusive of extensions) ends no later than March 3, 2023, unless extended further by mutual agreement of the parties. Until closing of the Arrangement, the Company and Sierra Wireless will remain separate independent companies.
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 $26.3 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 Income. The $0.3 million gain in the third quarter of fiscal year 2023 was due to a working capital adjustment resulting from the finalization of the purchase price that had been previously estimated at the time of the transaction. 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 Wireless and Sensing reporting unit that will be 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 is not considered a strategic shift that will have a major effect on the Company’s operations or financial results, it is not reported as discontinued operations.

12


Note 3: Earnings per Share
The computation of basic and diluted earnings per share was as follows:
 Three Months EndedNine Months Ended
(in thousands, except per share data)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Net income attributable to common stockholders$22,746 $34,427 $112,393 $90,860 
Weighted-average shares outstanding–basic63,764 64,546 63,738 64,786 
Dilutive effect of share-based compensation91 753 302 878 
Weighted-average shares outstanding–diluted63,855 65,299 64,040 65,664 
Earnings per share:
Basic$0.36 $0.53 $1.76 $1.40 
Diluted$0.36 $0.53 $1.76 $1.38 
Anti-dilutive shares not included in the above calculations:
Share-based compensation1,229 31 759 41 
Warrants8,573  8,573  
Total anti-dilutive shares9,802 31 9,332 41 
Diluted earnings 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 and market-condition restricted stock unit awards if certain conditions have been met, but excludes such incremental shares that would have an anti-dilutive effect.
Any dilutive effect of the Warrants (see Note 9, Long-Term Debt) is calculated using the treasury-stock method. During the three and nine months ended October 30, 2022, 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.
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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 Income as follows:
Three Months EndedNine Months Ended
(in thousands)October 30, 2022October 31, 2021October 30, 2022October 31, 2021
Cost of sales$633 $743 $2,018 $2,112 
Selling, general and administrative(1,028)12,528 13,692 26,985 
Product development and engineering3,480 4,070 11,518 11,600 
Total share-based compensation$3,085 $17,341 $27,228 $40,697 
Restricted Stock Units, Employees
The Company grants restricted stock units to certain employees that are expected to be settled with shares of the Company's common stock. The grant date for these awards is equal to the measurement date. These awards 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 4 years). In the nine months ended October 30, 2022, the Company granted 270,677 restricted stock units to employees.
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 will be settled in cash and a portion will be settled in shares of the Company's common stock. Restricted stock units awarded under the program are scheduled to vest on the earlier of (i) one year after the grant date or (ii) the day immediately preceding the Company's annual meeting of stockholders in the year 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 the board of directors. The portion of a restricted stock unit award under the program that is to be settled in shares of the Company's common stock will, subject to vesting, be settled promptly following vesting. In the nine months ended October 30, 2022, the Company granted to the non-employee directors 15,579 restricted stock units that settle in cash and 15,579 restricted stock units that settle in shares.
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. 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. 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 30, 2022, the Company granted 125,399 TSR Awards, which are accounted for as equity awards. The market condition is determined based upon the Company’s TSR benchmarked against the TSR of the S&P SPDR Semiconductor ETF (NYSE:XSD) over one, two and three year periods (one-third of the awards vesting each performance period). Generally, the fiscal year 2023 TSR 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 value per unit of the TSR Awards granted in the nine months ended October 30, 2022 for each one, two and three year performance period was $57.92, $68.94 and $75.69, respectively.

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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 30, 2022January 30, 2022
(in thousands)Fair ValueAmortized
Cost
Gross
Unrealized Gain/(Loss)
Fair ValueAmortized
Cost
Gross
Unrealized Gain/(Loss)
Convertible debt investments$13,691 $15,300 $(1,609)$12,872 $14,401 $(1,529)
Total available-for-sale securities$13,691 $15,300 $(1,609)$12,872 $14,401 $(1,529)
The following table summarizes the maturities of the Company’s available-for-sale securities:
October 30, 2022
(in thousands)Fair ValueAmortized Cost
Within 1 year$1,025 $5,052 
After 1 year through 5 years12,666 10,248 
Total available-for-sale securities$13,691 $15,300 
The Company's available-for-sale securities consist of investments in convertible debt instruments issued by privately-held companies. The available-for-sale securities with maturities within one year were included in "Other current assets" and maturities greater than one year were included in "Other assets" in the Balance Sheets.






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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 30, 2022January 30, 2022
(in thousands)Total(Level 1)(Level 2)(Level 3)Total(Level 1)(Level 2)(Level 3)
Financial assets: