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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 August 1, 2021
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 class Trading Symbol(s)   Name of each exchange on which registered
Common Stock par value $0.01 per share SMTC   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 August 27, 2021: 64,396,741



SEMTECH CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED AUGUST 1, 2021
 
3
4
28
36
37
38
38
38
38
38
38
38
39
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 uncertainty surrounding the impact and duration of the COVID-19 pandemic on global economic conditions and on the Company’s business and results of operations; 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; export restrictions and laws affecting the Company’s trade and investments including with respect to Huawei and certain of its affiliates and other entities identified by the U.S. government, and tariffs or the occurrence of trade wars; 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 dynamics.
Additionally, forward-looking statements should be considered in conjunction with the cautionary statements contained in this Quarterly Report on Form 10-Q, including, without limitation, information under the captions "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" and additional factors that accompany the related forward-looking statements in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 including, without limitation, information under the caption "Risk Factors," and in our other filings with the U.S. Securities and Exchange Commission (“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.
The factors noted above, and the risks included in our SEC filings, may be increased or intensified as a result of the COVID-19 pandemic. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. 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 Ended Six Months Ended
  August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Net sales $ 185,004  $ 143,660  $ 355,376  $ 276,362 
Cost of sales 69,572  55,409  135,083  107,350 
Gross profit 115,432  88,251  220,293  169,012 
Operating costs and expenses:
Selling, general and administrative 41,977  38,255  80,781  72,855 
Product development and engineering 35,497  29,220  72,287  56,806 
Intangible amortization 1,298  2,020  2,596  4,860 
Changes in the fair value of contingent earn-out obligations —  —  —  (33)
Total operating costs and expenses 78,772  69,495  155,664  134,488 
Operating income 36,660  18,756  64,629  34,524 
Interest expense (1,185) (1,252) (2,384) (2,811)
Non-operating income (expense), net 213  (176) 307  247 
Investment impairments and credit loss reserves (468) (1,485) (714) (5,115)
Income before taxes and equity in net gains (losses) of equity method investments 35,220  15,843  61,838  26,845 
Provision (benefit) for income taxes 2,963  (416) 6,161  943 
Net income before equity in net gains (losses) of equity method investments 32,257  16,259  55,677  25,902 
Equity in net gains (losses) of equity method investments 674  (137) 752  (148)
Net income 32,931  16,122  56,429  25,754 
Net loss attributable to noncontrolling interest (2) (3) (4) (6)
Net income attributable to common stockholders $ 32,933  $ 16,125  $ 56,433  $ 25,760 
Earnings per share:
Basic $ 0.51  $ 0.25  $ 0.87  $ 0.39 
Diluted $ 0.50  $ 0.24  $ 0.86  $ 0.39 
Weighted-average number of shares used in computing earnings per share:
Basic 64,721  65,084  64,905  65,337 
Diluted 65,584  66,004  65,849  66,099 
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 Ended Six Months Ended
  August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Net income $ 32,931  $ 16,122  $ 56,429  $ 25,754 
Other comprehensive income (loss), net:
Unrealized gain on foreign currency cash flow hedges, net —  479  —  358 
Reclassifications of realized loss on foreign currency cash flow hedges, net to net income —  — 
Unrealized gain (loss) on interest rate cash flow hedges, net 265  (317) 729  (1,620)
Reclassifications of realized (gain) loss on interest rate cash flow hedges, net to net income (187) 94  (366) 73 
Unrealized gain on available-for-sale securities —  133  —  386 
Reclassification of realized gain on available-for-sale securities, net to net income —  (757) —  (757)
Change in defined benefit plans, net 159  193  314  379 
Other comprehensive income (loss), net 237  (169) 677  (1,175)
Comprehensive income 33,168  15,953  $ 57,106  $ 24,579 
Comprehensive loss attributable to noncontrolling interest (2) (3) (4) (6)
Comprehensive income attributable to common stockholders $ 33,170  $ 15,956  $ 57,110  $ 24,585 
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)
August 1, 2021 January 31, 2021
Assets
Current assets:
Cash and cash equivalents $ 262,657  $ 268,891 
Accounts receivable, less allowances of $776 and $721, respectively
73,062  70,433 
Inventories 103,031  87,494 
Prepaid taxes 14,179  22,083 
Other current assets 31,920  25,827 
Total current assets 484,849  474,728 
Non-current assets:
Property, plant and equipment, net of accumulated depreciation of $245,422 and $233,779, respectively
132,140  130,934 
Deferred tax assets 24,816  25,483 
Goodwill 351,141  351,141 
Other intangible assets, net 9,150  11,746 
Other assets 97,908  88,070 
TOTAL ASSETS $ 1,100,004  $ 1,082,102 
Liabilities and Equity
Current liabilities:
Accounts payable $ 52,473  $ 50,189 
Accrued liabilities 63,893  59,384 
Total current liabilities 116,366  109,573 
Non-current liabilities:
Deferred tax liabilities 1,127  976 
Long term debt 175,436  179,195 
Other long-term liabilities 98,452  93,405 
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized, 78,136,144 issued and 64,396,741 outstanding and 78,136,144 issued and 65,098,379 outstanding, respectively
785  785 
Treasury stock, at cost, 13,739,403 shares and 13,037,765 shares, respectively
(499,199) (438,798)
Additional paid-in capital 486,693  473,728 
Retained earnings 727,629  671,196 
Accumulated other comprehensive loss (7,491) (8,168)
Total stockholders’ equity 708,417  698,743 
Noncontrolling interest 206  210 
Total equity 708,623  698,953 
TOTAL LIABILITIES AND EQUITY $ 1,100,004  $ 1,082,102 
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 August 1, 2021
Common Stock Accumulated Other Comprehensive Loss
Number of Shares Outstanding Amount Treasury Stock, at Cost Additional Paid-in Capital Retained Earnings Stockholders’ Equity Noncontrolling Interest Total Equity
Balance at May 2, 2021 64,897,920  $ 785  $ (460,249) $ 476,773  $ 694,696  $ (7,728) $ 704,277  $ 208  $ 704,485 
Net income —  —  —  —  32,933  —  32,933  (2) 32,931 
Other comprehensive income —  —  —  —  —  237  237  —  237 
Share-based compensation —  —  —  12,334  —  —  12,334  —  12,334 
Repurchase of common stock (639,519) —  (42,000) —  —  —  (42,000) —  (42,000)
Treasury stock reissued 138,340  —  3,050  (2,414) —  —  636  —  636 
Balance at August 1, 2021 64,396,741  $ 785  $ (499,199) $ 486,693  $ 727,629  $ (7,491) $ 708,417  $ 206  $ 708,623 

Six Months Ended August 1, 2021
Common Stock
Number of Shares Outstanding Amount Treasury Stock, at Cost Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Stockholders’ Equity Noncontrolling Interest Total Equity
Balance at January 31, 2021 65,098,379  $ 785  $ (438,798) $ 473,728  $ 671,196  $ (8,168) $ 698,743  $ 210  $ 698,953 
Net income —  —  —  —  56,433  —  56,433  (4) 56,429 
Other comprehensive income —  —  —  —  —  677  677  —  677 
Share-based compensation —  —  —  24,530  —  —  24,530  —  24,530 
Repurchase of common stock (1,000,461) —  (67,000) —  —  —  (67,000) —  (67,000)
Treasury stock reissued 298,823  —  6,599  (11,565) —  —  (4,966) —  (4,966)
Balance at August 1, 2021 64,396,741  $ 785  $ (499,199) $ 486,693  $ 727,629  $ (7,491) $ 708,417  $ 206  $ 708,623 
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 (CONTINUED)
(in thousands, except share data)
(unaudited)
Three Months Ended July 26, 2020
Common Stock Accumulated Other Comprehensive Loss
Number of Shares Outstanding Amount Treasury Stock, at Cost Additional Paid-in Capital Retained Earnings Stockholders’ Equity Noncontrolling Interest Total Equity
Balance at April 26, 2020 65,132,030  $ 785  $ (414,028) $ 460,961  $ 620,928  $ (7,172) $ 661,474  $ 243  $ 661,717 
Net income —  —  —  —  16,125  —  16,125  (3) 16,122 
Other comprehensive loss —  —  —  —  —  (169) (169) —  (169)
Share-based compensation —  —  —  11,343  —  —  11,343  —  11,343 
Repurchase of common stock (232,871) —  (12,387) —  —  —  (12,387) —  (12,387)
Treasury stock reissued 120,342  —  2,320  (1,213) —  —  1,107  —  1,107 
Balance at July 26, 2020 65,019,501  $ 785  $ (424,095) $ 471,091  $ 637,053  $ (7,341) $ 677,493  $ 240  $ 677,733 

Six Months Ended July 26, 2020
Common Stock Accumulated Other Comprehensive Loss
Number of Shares Outstanding Amount Treasury Stock, at Cost Additional Paid-in Capital Retained Earnings Stockholders’ Equity Noncontrolling Interest Total Equity
Balance at January 26, 2020 65,758,115  $ 785  $ (387,851) $ 458,579  $ 611,607  $ (6,166) $ 676,954  $ 246  $ 677,200 
Cumulative-effect adjustment to beginning balance from adoption of ASU 2016-13 —  —  —  —  (314) —  (314) —  (314)
Net income —  —  —  —  25,760  —  25,760  (6) 25,754 
Other comprehensive loss —  —  —  —  —  (1,175) (1,175) —  (1,175)
Share-based compensation —  —  —  22,424  —  —  22,424  —  22,424 
Repurchase of common stock (1,087,913) —  (42,387) —  —  —  (42,387) —  (42,387)
Treasury stock reissued 349,299  —  6,143  (9,912) —  —  (3,769) —  (3,769)
Balance at July 26, 2020 65,019,501  $ 785  $ (424,095) $ 471,091  $ 637,053  $ (7,341) $ 677,493  $ 240  $ 677,733 
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)
Six Months Ended
  August 1, 2021 July 26, 2020
Cash flows from operating activities:
Net income $ 56,429  $ 25,754 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,221  14,340 
Amortization of right-of-use assets 2,182  1,941 
Investment impairments and credit loss reserves 714  5,115 
Accretion of deferred financing costs and debt discount 241  242 
Deferred income taxes 719  (6,209)
Share-based compensation 23,356  22,565 
Loss (gain) on disposition of assets (20)
Changes in the fair value of contingent earn-out obligations —  (33)
Equity in net (gains) losses of equity method investments (752) 148 
Corporate owned life insurance, net 3,626  2,030 
Changes in assets and liabilities:
Accounts receivable, net (2,629) 10,255 
Inventories (15,537) (4,538)
Other assets 2,434  (3,798)
Accounts payable 2,274  (5,820)
Accrued liabilities 2,874  543 
Other liabilities (5,555) 784 
Net cash provided by operating activities 85,599  63,299 
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment 42  20 
Purchase of property, plant and equipment (12,732) (14,640)
Purchase of investments (3,177) (6,688)
Proceeds from sale of investments —  327 
Net cash used in investing activities (15,867) (20,981)
Cash flows from financing activities:
Payments of revolving line of credit (4,000) (8,000)
Deferred financing costs —  (30)
Payment for employee share-based compensation payroll taxes (7,289) (6,750)
Proceeds from exercise of stock options 2,323  2,981 
Repurchase of common stock (67,000) (42,387)
Net cash used in financing activities (75,966) (54,186)
Net decrease in cash and cash equivalents (6,234) (11,868)
Cash and cash equivalents at beginning of period 268,891  293,324 
Cash and cash equivalents at end of period $ 262,657  $ 281,456 
Supplemental disclosure of cash flow information:
Interest paid $ 2,120  $ 2,664 
Income taxes paid $ 3,163  $ 4,632 
Non-cash investing and financing activities:
Accounts payable related to capital expenditures $ 2,872  $ 1,377 
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, although the first and second quarters of fiscal year 2022 end on the first Sunday of May and August, respectively. All quarters consist of 13 weeks except for one 14-week period in the fourth quarter of 53-week years. The second quarters of fiscal years 2022 and 2021 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 31, 2021 ("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.
Recently Adopted Accounting Guidance
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2019-12, Simplifying the Accounting for Income Taxes, which modifies Accounting Standards Codification ("ASC") 740 to simplify the accounting for income taxes. This guidance impacts the accounting for hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of legal entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, ownership changes in investments from a subsidiary to an equity method investment and vice versa, interim period accounting for enacted changes in tax law and the year-to-date loss limitation in interim period tax accounting. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within this those fiscal years, with early adoption permitted. The Company adopted this guidance in the first quarter of fiscal year 2022. Adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

10


Note 2: Earnings per Share
The computation of basic and diluted earnings per share was as follows:
  Three Months Ended Six Months Ended
(in thousands, except per share data) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Net income attributable to common stockholders $ 32,933  $ 16,125  $ 56,433  $ 25,760 
Weighted-average shares outstanding–basic 64,721  65,084  64,905  65,337 
Dilutive effect of share-based compensation 863  920  944  762 
Weighted-average shares outstanding–diluted 65,584  66,004  65,849  66,099 
Earnings per share:
Basic $ 0.51  $ 0.25  $ 0.87  $ 0.39 
Diluted $ 0.50  $ 0.24  $ 0.86  $ 0.39 
Anti-dilutive shares not included in the above calculations 201  —  306
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.
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Note 3: Share-Based Compensation
Financial Statement Effects and Presentation
Pre-tax share-based compensation was included in the Statements of Income as follows:
Three Months Ended Six Months Ended
(in thousands) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Cost of sales $ 651  $ 550  $ 1,369  $ 1,080 
Selling, general and administrative 7,098  9,501  14,457  15,460 
Product development and engineering 3,768  3,135  7,530  6,025 
Total share-based compensation $ 11,517  $ 13,186  $ 23,356  $ 22,565 
Restricted Stock Units, Employees
The Company grants restricted stock units to certain employees, which 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 six months ended August 1, 2021, the Company granted 182,037 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 six months ended August 1, 2021, the Company granted to the non-employee directors 11,898 restricted stock units that settle in cash and 11,898 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 and expense is recognized on a straight line basis over the vesting periods and is adjusted for any actual forfeitures.
In the six months ended August 1, 2021, the Company granted 81,688 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 2022 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 six months ended August 1, 2021 for each one, two and three year performance period was $67.41, $77.99 and $84.17, respectively.
Market-Condition Restricted Stock Units
In the six months ended August 1, 2021, the Company granted an additional 54,928 restricted stock units with a different market condition. These additional awards are eligible to vest during the period commencing March 9, 2021, and ending May 5, 2024 (the "Performance Period") as follows: the restricted stock units covered by the award will vest if, during any consecutive 30 trading day period that commences and ends during the Performance Period, the average per-share closing price of the Company’s common stock equals or exceeds $95.00. The grant-date fair value per unit of the awards granted in the six months ended August 1, 2021 was $49.55.


12


Note 4: Available-for-sale securities
The following table summarizes the values of the Company’s available-for-sale securities:
  August 1, 2021 January 31, 2021
(in thousands) Fair Value Amortized
Cost
Gross
Unrealized Gain/(Loss)
Fair Value Amortized
Cost
Gross
Unrealized Gain/(Loss)
Convertible debt $ 11,655  $ 13,436  $ (1,781) $ 11,989  $ 13,244  $ (1,255)
Total available-for-sale securities $ 11,655  $ 13,436  $ (1,781) $ 11,989  $ 13,244  $ (1,255)
The following table summarizes the maturities of the Company’s available-for-sale securities:
August 1, 2021
(in thousands) Fair Value Amortized Cost
Within 1 year $ 11,299  $ 12,593 
After 1 year through 5 years 356  843 
Total available-for-sale securities $ 11,655  $ 13,436 
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.






13


Note 5: 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:
  August 1, 2021 January 31, 2021
(in thousands) Total (Level 1) (Level 2) (Level 3) Total (Level 1) (Level 2) (Level 3)
Financial assets:
Total return swap contracts $ 154  $ —  $ 154  $ —  $ —  $ —  $ —  $ — 
Convertible debt 11,655  —  —  11,655  11,989  —  —  11,989 
Total financial assets $ 11,809  $ —  $ 154  $ 11,655  $ 11,989  $ —  $ —  $ 11,989 
Financial liabilities:
Interest rate swap agreement $ 1,318  $ —  $ 1,318  $ —  $ 1,782  $ —  $ 1,782  $ — 
Total return swap contracts —  —  —  —  167  —  167  — 
Total financial liabilities $ 1,318  $ —  $ 1,318  $ —  $ 1,949  $ —  $ 1,949  $ — 
During the six months ended August 1, 2021, the Company had no transfers of financial assets or liabilities between Level 1, Level 2 or Level 3. As of August 1, 2021 and January 31, 2021, 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 the convertible debt investments in the six months ended August 1, 2021:
(in thousands)
Balance at January 31, 2021 $ 11,989 
Additions 450 
Increase in credit loss reserve (714)
Interest accrued 556 
Conversion to equity (626)
Balance at August 1, 2021 $ 11,655 
The interest rate swap agreement is measured at fair value using readily available interest rate curves (Level 2 inputs). The fair value of the 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 15 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 "Accrued Liabilities" if the instruments are in a loss position and in "Other Current Assets" if the instruments are in a gain position. See Note 15 for further discussion of the Company's derivative instruments.
14


Instruments Not Recorded at Fair Value on a Recurring Basis
Some of the Company’s financial instruments are not measured at fair value on a recurring basis, 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 long-term debt is recorded at cost, which approximates fair value as the long-term debt bears interest at a floating rate.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
The Company reduces the carrying amounts of its goodwill, intangible assets, long-lived assets and non-marketable equity securities to fair value when held for sale or determined to be 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 was $4.1 million and $3.4 million as of August 1, 2021 and January 31, 2021, respectively. During the three and six months ended August 1, 2021, the Company increased its expected credit loss reserves by $0.5 million and $0.7 million, respectively, for its available-for-sale debt securities. Upon the adoption of ASU 2016-13 in the first quarter of fiscal year 2021, the Company recorded expected credit loss reserves of $0.4 million related to its held-to-maturity debt securities. During the three and six months ended July 26, 2020, the Company increased its expected credit loss reserves by zero and $2.4 million, respectively, for its held-to-maturity debt securities and available-for-sale debt securities. These increases were, in-part, due to the impact of the COVID-19 pandemic on early-stage development companies. During the three and six months ended July 26, 2020, the Company recorded $1.7 million and $2.9 million, respectively, of impairments on its non-marketable equity investments.





15


Note 6: 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) August 1, 2021 January 31, 2021
Raw materials $ 3,406  $ 2,936 
Work in progress 71,454  59,523 
Finished goods 28,171  25,035 
Inventories $ 103,031  $ 87,494 

16


Note 7: Goodwill and Intangible Assets
Goodwill
The carrying amounts of goodwill by applicable reporting unit were as follows:
(in thousands) Signal Integrity Wireless and Sensing Protection Total
Balance at January 31, 2021 $ 274,085  $ 72,128  $ 4,928  $ 351,141 
Balance at August 1, 2021 $ 274,085  $ 72,128  $ 4,928  $ 351,141 
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. The recoverability 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. As of August 1, 2021, there was no indication of impairment of the Company's goodwill balances.
Purchased Intangibles
The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and technology licenses purchased, which are amortized over their estimated useful lives:
  August 1, 2021 January 31, 2021
(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
3-8 years
$ 29,300  $ (20,150) $ 9,150  $ 29,300  $ (17,554) $ 11,746 
Total finite-lived intangible assets $ 29,300  $ (20,150) $ 9,150  $ 29,300  $ (17,554) $ 11,746 
Amortization expense of finite-lived intangible assets recorded in the Statements of Income for each period was as follows:
Three Months Ended Six Months Ended
(in thousands) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Core technologies $ 1,298  $ 1,798  $ 2,596  $ 4,271 
Customer relationships —  222  —  589 
Total amortization expense $ 1,298  $ 2,020  $ 2,596  $ 4,860 
Future amortization expense of finite-lived intangible assets is expected as follows:
(in thousands)
Fiscal Year Ending:
Fiscal year 2022 (remaining six months) $ 2,346 
Fiscal year 2023 4,002 
Fiscal year 2024 1,676 
Fiscal year 2025 288 
Fiscal year 2026 288 
Thereafter 550 
Total expected amortization expense $ 9,150 

17


Note 8: Long-Term Debt
Long-term debt and the current period interest rates were as follows:
(in thousands, except percentages) August 1, 2021 January 31, 2021
Revolving loans $ 177,000  $ 181,000 
Debt issuance costs (1,564) (1,805)
Total long-term debt, net of debt issuance costs $ 175,436  $ 179,195 
Effective interest rate (1)
1.88  % 1.88  %
(1) The revolving loans bear interest at a variable rate based on LIBOR or a Base Rate, 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 2021, the Company entered into an interest rate swap agreement that fixed the interest on the first $150.0 million of debt outstanding under the revolving loans at 1.9775%. As of August 1, 2021, the effective interest rate is a weighted-average rate that represents interest on the first $150.0 million of the debt outstanding at a fixed LIBOR rate of 0.7275% plus a margin of 1.25% (total fixed rate of 1.9775%), and the remainder of the debt outstanding at a variable rate based on the one-month LIBOR rate, which was 0.11% as of August 1, 2021, plus a margin of 1.25% (total variable rate of 1.36%). As of January 31, 2021, the effective interest rate is a weighted-average rate that represents interest on the first $150.0 million of the debt outstanding at a fixed LIBOR rate of 0.7275% plus a margin of 1.25% (total fixed rate of 1.9775%), and the remainder of the debt outstanding at a variable rate based on the one-month LIBOR rate, which was 0.14% as of January 31, 2021, plus a margin of 1.25% (total variable rate of 1.39%).
On November 7, 2019, the Company, with certain of its domestic subsidiaries as guarantors, entered into an amended and restated credit agreement with the lenders party thereto and HSBC Bank USA, National Association, as administrative agent, swing line lender and letter of credit issuer. The borrowing capacity of the revolving loans under the senior secured first lien credit facility (the "Credit Facility") is $600.0 million and matures on November 7, 2024. As of August 1, 2021, the Company had $177.0 million outstanding under its Credit Facility, which had $423.0 million of undrawn borrowing capacity, and the Company was in compliance with the covenants required under the Credit Facility.
On August 11, 2021, the Company entered into an amendment to the Credit Agreement in order to, among other things, (i) provide for contractual fallback language for LIBOR replacement to reflect the Alternative Reference Rates Committee hardwired approach and (ii) incorporate certain provisions that clarify the rights of the administrative agent to recover from lenders or other secured parties erroneous payments made to such lenders or secured parties.
Interest expense was comprised of the following components for the periods presented:
  Three Months Ended Six Months Ended
(in thousands) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Contractual interest (1)
$ 1,065  $ 1,131  $ 2,143  $ 2,569 
Amortization of debt discount and issuance costs 120  121  241  242 
Total interest expense $ 1,185  $ 1,252  $ 2,384  $ 2,811 
(1) Contractual interest represents the interest on the Company's outstanding debt after giving effect to the interest rate swap agreement.
As of August 1, 2021, there were no amounts outstanding under the letters of credit, swing line loans and alternative currency sub-facilities.
18


Note 9: 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, withholding taxes on certain foreign earnings, excess tax benefits from share-based compensation and research and development tax credits.
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 31, 2021 $ 26,850 
Additions/(decreases) based on tax positions related to the current fiscal year 272 
Additions/(decreases) based on tax positions related to the prior fiscal years (968)
Balance at August 1, 2021 $ 26,154 
Included in the balance of gross unrecognized tax benefits at August 1, 2021 and January 31, 2021 are $8.9 million and $9.7 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) August 1, 2021 January 31, 2021
Deferred tax assets - non-current $ 15,865  $ 15,770 
Other long-term liabilities 8,934  9,731 
Total accrued taxes $ 24,799  $ 25,501 
The Company’s policy is to include net interest and penalties related to unrecognized tax benefits in the "Provision for income taxes" in the Statements of Income.
Tax years prior to 2013 (the Company’s fiscal year 2014) are generally not subject to examination by the United States ("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 2019. 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.
The Company’s regional income (loss) from continuing operations before taxes and equity in net gains of equity method investments was as follows:
  Three Months Ended Six Months Ended
(in thousands) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Domestic $ (6,623) $ (10,125) $ (12,108) $ (17,012)
Foreign 41,843  25,968  73,946  43,857 
Total $ 35,220  $ 15,843  $ 61,838  $ 26,845 
19


Note 10: Leases
The Company has operating leases for real estate, vehicles, and office equipment. 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 10 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.
The components of lease expense were as follows:
Three Months Ended Six Months Ended
(in thousands) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Operating lease cost $ 1,487  $ 1,178  $ 2,824  $ 2,355 
Short-term lease cost 258  —  503  — 
Sublease income (54) (34) (75) (67)
Total lease cost $ 1,691  $ 1,144  $ 3,252  $ 2,288 
Supplemental cash flow information related to leases was as follows:
Six Months Ended
(in thousands) August 1, 2021 July 26, 2020
Cash paid for amounts included in the measurement of lease liabilities $ 3,237  $ 2,283 
Right-of-use assets obtained in exchange for new operating lease liabilities $ 7,376  $ 8,298 
August 1, 2021
Weighted-average remaining lease term–operating leases (in years) 5.98
Weighted-average discount rate on remaining lease payments–operating leases 6.4  %
Supplemental balance sheet information related to leases was as follows:
(in thousands) August 1, 2021 January 31, 2021
Operating lease right-of-use assets in "Other assets" $ 21,518  $ 16,337 
Operating lease liabilities in "Accrued liabilities" $ 3,585  $ 3,975 
Operating lease liabilities in "Other long-term liabilities" 18,560  13,172 
Total operating lease liabilities $ 22,145  $ 17,147 
Maturities of lease liabilities as of August 1, 2021 are as follows:
(in thousands)
Fiscal Year Ending:
2022 (remaining six months) $ 2,372 
2023 4,940 
2024 4,581 
2025 4,412 
2026 3,502 
Thereafter 6,934 
Total lease payments 26,741 
Less: imputed interest (4,596)
Total $ 22,145 

20


Note 11: Commitments and Contingencies
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 such disclosure is necessary for its consolidated financial statements not to be misleading. 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. 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 in excess of amounts accrued 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.
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 range of probable loss between $7.4 million and $8.0 million. To date, the Company has made $5.5 million in payments towards the remedial action plan and, as of August 1, 2021, has a remaining accrual of $1.9 million related to this matter. 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. 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.
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.
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 vesting period.
The Company's liability for the deferred compensation plan is presented below:
(in thousands) August 1, 2021 January 31, 2021
Accrued liabilities $ 2,039  $ 1,709 
Other long-term liabilities 45,046  39,299 
Total deferred compensation liabilities under this plan $ 47,085  $ 41,008 
The Company has purchased whole life insurance on the lives of certain current deferred compensation plan participants. This Company-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-owned life insurance was $30.8 million and $27.6 million as of August 1, 2021 and January 31, 2021, respectively, and is included in "Other assets" in the Balance Sheets.
Earn-out Liability
Pursuant to the terms of an amended arrangement with the former shareholders of Cycleo SAS, which the Company acquired in March 2012, earn-out payments are based on the achievement of a combination of certain sales and operating income milestones over the period of April 27, 2015 to April 26, 2020. No payments have been made during fiscal years 2022 and 2021 for the remaining earn-out milestone pending the outcome or resolution of a dispute between the Company and the earn-out participants. Any payment that may be made for the remaining portion of the earn-out is not expected to be material.

21


Note 12: Concentration of Risk
The following significant customers accounted for at least 10% of the Company's net sales in one or more of the periods indicated:
Three Months Ended Six Months Ended
(percentage of net sales) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Frontek Technology Corporation (and affiliates) 19  % 15  % 19  % 13  %
Trend-tek Technology Ltd. (and affiliates) 18  % 21  % 17  % 18  %
Arrow Electronics (and affiliates) 11  % 10  % 11  % %
CEAC International Limited 11  % 12  % 10  % 12  %
The following table shows the customers that had an outstanding receivable balance that represented at least 10% of the Company's total net receivables as of one or more of the dates indicated:
(percentage of net receivables) August 1, 2021 January 31, 2021
Frontek Technology Corporation (and affiliates) 20  % 10  %
Trend-tek Technology Ltd (and affiliates) 12  % 14  %
CEAC International Limited 11  % 14  %
Outside Subcontractors and Suppliers
The Company relies on a limited number of third-party subcontractors and suppliers for the production of silicon wafers, packaging and certain other tasks. Disruption or termination of supply sources or subcontractors, including due to the COVID-19 pandemic or natural disasters such as an earthquake or other causes, have delayed and could in the future delay shipments and could have a material adverse effect on the Company. Although there are generally alternate sources for these materials and services, qualification of the alternate sources could cause delays sufficient to have a material adverse effect on the Company. A significant amount of the Company’s third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in the U.S., Taiwan and China. A significant amount of the Company’s assembly and test operations are conducted by third-party contractors in China, Taiwan, Malaysia, the Philippines, South Korea and Thailand.

22


Note 13: Segment Information
The Company’s Chief Executive Officer functions as the chief operating decision maker ("CODM"). The CODM makes operating decisions and assesses performance based on the Company's major product lines, which represent its operating segments. The Company has three operating segments—Signal Integrity, Wireless and Sensing, and Protection—that have similar economic characteristics and have been aggregated into one reportable segment identified as the "Semiconductor Products Group."
The Company’s assets are commingled among the three operating segments and the CODM does not use asset information in making operating decisions or assessing performance. Therefore, the Company has not included asset information by segment in the segment disclosures below.
Net sales by segment were as follows:
Three Months Ended Six Months Ended
(in thousands) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Semiconductor Products Group $ 185,004  $ 143,660  $ 355,376  $ 276,362 
Total $ 185,004  $ 143,660  $ 355,376  $ 276,362 
The following table presents a reconciliation of operating income by segment to consolidated income before taxes and equity in net gains (losses) of equity method investments. Historical amounts have been adjusted to conform to the current presentation:
Three Months Ended Six Months Ended
(in thousands) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Semiconductor Products Group $ 50,152  $ 34,818  $ 91,621  $ 62,916 
   Operating income by segment 50,152  34,818  91,621  62,916 
Items to reconcile segment operating income to consolidated income before taxes and equity in net gains (losses) of equity method investments:
Share-based compensation 11,517  13,186  23,356  22,565 
Intangible amortization 1,298  2,020  2,596  4,860 
Investment impairments and credit loss reserves 468  1,485  714  5,115 
Changes in the fair value of contingent earn-out obligations —  —  —  (33)
Restructuring and other reserves 16  502  16  502 
Litigation cost, net of recoveries 560  105  1,100  251 
Transaction and integration related 101  249  (76) 247 
Interest expense 1,185  1,252  2,384  2,811 
Non-operating (income) expense, net (213) 176  (307) (247)
Income before taxes and equity in net gains (losses) of equity method investments $ 35,220  $ 15,843  $ 61,838  $ 26,845 
Information by Product Line
The Company operates exclusively in the semiconductor industry and primarily within the analog and mixed-signal sector.
The table below provides net sales activity by product line on a comparative basis:
Three Months Ended Six Months Ended
(in thousands, except percentages) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Signal Integrity $ 73,087  39  % $ 71,645  50  % $ 139,782  39  % $ 131,574  48  %
Wireless and Sensing 62,593  34  % 38,830  27  % 121,100  34  % 71,788  26  %
Protection 49,324  27  % 33,185  23  % 94,494  27  % 73,000  26  %
Total net sales $ 185,004  100  % $ 143,660  100  % $ 355,376  100  % $ 276,362  100  %
23


Information by Sales Channel
(in thousands, except percentages) Three Months Ended Six Months Ended
August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Distributor $ 160,754  87  % $ 116,545  81  % $ 307,154  86  % $ 220,493  80  %
Direct 24,250  13  % 27,115  19  % 48,222  14  % 55,869  20  %
Total net sales $ 185,004  100  % $ 143,660  100  % $ 355,376  100  % $ 276,362  100  %
Generally, the Company does not have long-term contracts with its distributors and most distributor agreements can be terminated by either party with short notice. For the second quarter of fiscal year 2022, the Company's largest distributors were based in Asia.
Geographic Information
Net sales activity by geographic region was as follows:
  Three Months Ended Six Months Ended
(percentage of total net sales) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Asia-Pacific 81  % 80  % 80  % 80  %
North America 11  % 12  % 12  % 12  %
Europe % % % %
100  % 100  % 100  % 100  %
The Company attributes sales to a country based on the ship-to address. The table below summarizes sales activity to countries that represented greater than 10% of total net sales for at least one of the periods presented:
  Three Months Ended Six Months Ended
(percentage of total net sales) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
China (including Hong Kong) 63  % 63  % 62  % 60  %
United States % % 10  % %
Although a large percentage of the Company's products is shipped into the Asia-Pacific region, a significant number of the products produced by these customers and incorporating the Company's semiconductor products are then sold outside this region.

24


Note 14: Stock Repurchase Program
The Company maintains a stock repurchase program that was initially approved by its Board of Directors in March 2008. The stock repurchase program does not have an expiration date and the Company’s Board of Directors has authorized expansion of the program over the years. The following table summarizes activity under the program for the presented periods:
Three Months Ended Six Months Ended
August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
(in thousands, except number of shares) Shares Amount Paid Shares Amount Paid Shares Price Paid Shares Price Paid
Shares repurchased under the stock repurchase program 639,519  $ 42,000  232,871  $ 12,387  1,000,461  $ 67,000  1,087,913  $ 42,387 
On March 11, 2021, the Company's Board of Directors approved the expansion of the stock repurchase program by an additional $350.0 million. As of August 1, 2021, the Company had repurchased $476.2 million in shares of its common stock under the program since inception and the remaining authorization under the program was $322.2 million. Under the program, the Company may repurchase its common stock at any time or from time to time, without prior notice, subject to market conditions and other considerations. The Company’s repurchases may be made through Rule 10b5-1 and/or Rule 10b-18 or other trading plans, open market purchases, privately negotiated transactions, block purchases or other transactions. The Company intends to fund repurchases under the program from cash on hand. The Company has no obligation to repurchase any shares under the program and may suspend or discontinue it at any time.
25


Note 15: Derivatives and Hedging Activities
The Company is exposed to certain risks arising from both its business operations and economic conditions and principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company, on a routine basis and in the normal course of business, experiences expenses denominated in Swiss Franc ("CHF"), Canadian Dollar ("CAD") and Great British Pound ("GBP"). Such expenses expose the Company to exchange rate fluctuations between these foreign currencies and the U.S. Dollar ("USD"). The Company occasionally uses derivative financial instruments, in the form of forward contracts, to mitigate a portion of the risk associated with adverse movements in these foreign currency exchange rates during a twelve-month window. Currency forward contracts involve fixing the exchange rate for delivery of a specified amount of foreign currency on a specified date. The Company’s accounting treatment for these instruments is based on whether or not the instruments are designated as a hedging instrument. As of August 1, 2021 and January 31, 2021, the Company had no outstanding foreign currency forward contracts.
During the first quarter of fiscal year 2021, the Company entered into an interest rate swap agreement with a three-year term to hedge the variability of interest payments on the first $150.0 million of debt outstanding under the Company's Credit Facility. Interest payments on the first $150.0 million of the Company's debt outstanding under the Credit Facility are now fixed at a rate of 1.9775%, based on the Company's current leverage ratio. The interest rate swap agreement has been designated as a cash flow hedge and unrealized gains or losses, net of income tax, are recorded as a component of "Accumulated Other Comprehensive Income or Loss" in the Balance Sheets. As the various settlements are made on a monthly basis, the realized gain or loss on the settlements are recorded in "Interest expense" in the Statements of Income. The realized loss on the interest rate swap agreement was $0.2 million and $0.5 million for the three and six months ended August 1, 2021, respectively. The realized loss on the interest rate swap agreement was $0.1 million and $0.1 million for the three and six months ended July 26, 2020, respectively.
The fair values of the Company's derivative assets and liabilities that qualify as cash flow hedges in the Balance Sheets were as follows:
Balance as of
(in thousands) August 1, 2021 January 31, 2021
Interest rate swap agreement $ 855  $ 849 
Total accrued liabilities $ 855  $ 849 
Interest rate swap agreement $ 463  $ 933 
Total other long-term liabilities $ 463  $ 933 
During the fourth quarter of fiscal year 2021, the Company entered into an economic hedge program that uses total return swap contracts to hedge the market risk associated with the unfunded portion of the Company's deferred compensation liability. The total return swap contracts generally have a duration of one month and are rebalanced and re-hedged at the end of each monthly term. While the total returns swap contracts are treated as economic hedges, the Company has not designated them as hedges for accounting purposes. The total return swap contracts are measured at fair value and recognized in the Balance Sheets in "Accrued Liabilities" if the instruments are in a loss position and in "Other Current Assets" if the instruments are in a gain position. Unrealized gains and losses, as well as realized gains and losses for settlements, on the total return swap contracts are recognized in "Selling, general and administrative expenses" in the Statements of Income. As of August 1, 2021, the notional value of the total return swap contracts was $15.8 million and the fair value resulted in an asset balance of $0.2 million. As of January 31, 2021, the notional value of the total return swap contracts was $11.9 million and the fair value resulted in a liability balance of $0.2 million. The net gain recognized in earnings on the total return swap contracts was $0.6 million and $1.6 million for the three and six months ended August 1, 2021, respectively.

26


ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following "Management’s Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with our interim unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this "Quarterly Report"), and the "Special Note Regarding Forward-Looking and Cautionary Statements" in this Quarterly Report.
Overview
Semtech Corporation (together with its consolidated subsidiaries, the "Company", "we", "our", or "us") designs, develops, manufactures and markets high-performance analog and mixed signal semiconductors and advanced algorithms. We operate and account for results in one reportable segment through three operating segments, comprised of our product lines: Signal Integrity, Wireless and Sensing, and Protection.
Signal Integrity. We design, develop and market a portfolio of optical data communications and video transport products used in a wide variety of infrastructure and industrial applications. Our comprehensive portfolio of integrated circuits ("ICs") for data centers, enterprise networks, passive optical networks ("PON"), and wireless base station optical transceivers and high-speed interfaces ranges from 100Mbps to 800Gbps and supports key industry standards such as Fibre Channel, Infiniband, Ethernet, PON and synchronous optical networks. Our video products offer advanced solutions for next generation high-definition broadcast applications, as well as highly differentiated video-over-IP technology for professional audio video applications.
Wireless and Sensing. We design, develop and market a portfolio of specialized radio frequency products used in a wide variety of industrial, medical and communications applications, and specialized sensing products used in industrial and consumer applications. Our wireless products, which include our LoRa® devices and wireless radio frequency technology, feature industry leading and longest range industrial, scientific and medical radio, enabling a lower total cost of ownership and increased reliability in all environments. These features make these products particularly suitable for machine to machine and Internet-of-Things ("IoT") applications. Our unique sensing technology enables proximity sensing and advanced user interface solutions for our mobile and consumer products. Our wireless and sensing products can be found in a broad range of applications in the industrial, medical, and consumer markets. We also design, develop, and market power product devices that control, alter, regulate, and condition the power within electronic systems focused on the LoRa and IoT infrastructure segment. The highest volume product types within this category are switching voltage regulators, combination switching and linear regulators, smart regulators, isolated switches, and wireless charging.
Protection. We design, develop and market high-performance protection devices, which are often referred to as transient voltage suppressors ("TVS"). TVS devices provide protection for electronic systems where voltage spikes (called transients), such as electrostatic discharge, electrical over stress or secondary lightning surge energy, can permanently damage sensitive ICs. Our portfolio of protection solutions include filter and termination devices that are integrated with the TVS device. Our products provide robust protection while preserving signal integrity in high-speed communications, networking and video interfaces. These products also operate at very low voltage. Our protection products can be found in a broad range of applications including smart phones, LCD and organic light-emitting diode TVs and displays, set-top boxes, monitors and displays, tablets, computers, notebooks, base stations, routers, automobile and industrial instruments.
Our interim unaudited condensed consolidated balance sheets are referred to herein as the "Balance Sheets" and interim unaudited condensed consolidated statements of income are referred to herein as the "Statements of Income."
Our net sales by product line were as follows:
  Three Months Ended Six Months Ended
(in thousands) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Signal Integrity $ 73,087  $ 71,645  $ 139,782  $ 131,574 
Wireless and Sensing 62,593  38,830  121,100  71,788 
Protection 49,324  33,185  94,494  73,000 
Total $ 185,004  $ 143,660  $ 355,376  $ 276,362 
We design, develop and market a wide range of products for commercial applications, the majority of which are sold into the infrastructure, high-end consumer and industrial end markets.
Infrastructure: data centers, PON, base stations, optical networks, servers, carrier networks, switches and routers, cable modems, wireless local area network ("LAN") and other communication infrastructure equipment.
High-End Consumer: smartphones, tablets, wearables, desktops, notebooks, and other handheld products, wireless charging, set-top boxes, digital televisions, monitors and displays, digital video recorders and other consumer equipment.
27


Industrial: IoT applications, analog and digital video broadcast equipment, video-over-IP solutions, automated meter reading, smart grid, wireless charging, military and aerospace, medical, security systems, automotive, industrial and home automation and other industrial equipment.
Our end customers are primarily original equipment manufacturers that produce and sell electronics.
Impact of COVID-19
The COVID-19 pandemic has significantly affected health and economic conditions throughout the United States ("U.S.") and the rest of the world including Asia, where a significant percentage of our customers, suppliers, third party foundries and subcontractors are located. As a result of the pandemic, certain of our facilities and the third-party foundries and assembly and test contractors to which we outsource our manufacturing functions, have had to periodically reduce or suspend operations. The disruption experienced during such closures has resulted in reduced production of our products, delays for delivery of our products to our customers, and reduced ability to receive supplies, which have had and may continue to have, individually and in the aggregate, an adverse effect on our results.
Currently, customer demand remains strong and supply tight, with many of our suppliers running at or near capacity and our customers competing for the limited supply. While we have increased our inventory levels to prepare for our strong backlog of orders, we cannot provide assurance that we will have sufficient inventory if this high level of demand is sustained over the longer term. In addition, the prices to obtain raw materials and convert them into the necessary inventory have increased in certain cases, and may continue to increase. While we have been largely successful with passing on selective price increases to our customers, we cannot assure you that all future, potential price increases can be absorbed through increased pricing to our customers.
We believe we have good visibility going into the third quarter of fiscal year 2022; however, it is unknown how much of the increased demand reflects real end market strength. We believe the general supply chain constraints in the industry may be motivating certain customers to increase their orders and inventory levels to protect against the supply risk. To the extent that this cautionary purchasing is occurring, we could experience a decrease in future demand as potential excess inventory chain is worked down.
Factors Affecting Our Performance
Most of our sales to customers are made on the basis of individual customer purchase orders. Many customers include cancellation provisions in their purchase orders. Trends within the industry toward shorter lead-times and "just-in-time" deliveries have reduced our ability to predict future shipments. As a result, we generally rely on orders received and shipped within the same quarter for a significant portion of our sales. As a result of current macro conditions where demand is exceeding supply and we are seeing global shortages, lead times may continue to expand resulting in fewer orders being shipped and received in the same quarter. Orders received and shipped in the second quarters of fiscal years 2022 and 2021 represented 3% and 24% of net sales, respectively. Sales made directly to customers during the second quarters of fiscal years 2022 and 2021 were 13% and 19% of net sales, respectively. The remaining sales were made through independent distributors. The decline in direct sales is due to customers electing to leverage the value of distribution to better manage their supply chain.
Our business relies on foreign-based entities. Many of our third-party subcontractors and suppliers, including third-party foundries that supply silicon wafers, are located in foreign countries including Taiwan and China. Foreign sales constituted approximately 91% and 91% of our net sales during the second quarters of fiscal years 2022 and 2021, respectively. Approximately 81% and 80% of our sales during the second quarters of fiscal years 2022 and 2021, respectively, were to customers located in the Asia-Pacific region. The remaining foreign sales were primarily to customers in Europe, Canada and Mexico. Doing business in foreign locations also subjects us to export restrictions and trade laws, which may limit our ability to sell to certain customers. For example, the U.S. Department of Commerce expanded its restrictions on certain technology sold to or for Huawei in 2020, which adversely impacted our sales to this customer.
We use several metrics as indicators of future potential growth. The indicators that we believe best correlate to potential future sales growth are design wins and new product releases. There are many factors that may cause a design win or new product release not to result in sales, including a customer's decision not to go to system production, a change in a customer’s perspective regarding a product’s value or a customer’s product failing in the end market. As a result, although a design win or new product introduction is an important step towards generating future sales, it does not inevitably result in us being awarded business or receiving a purchase commitment.
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Results of Operations
The following table sets forth, for the periods indicated, our interim unaudited condensed consolidated statements of income expressed as a percentage of net sales.
  Three Months Ended Six Months Ended
August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Net sales 100.0  % 100.0  % 100.0  % 100.0  %
Cost of sales 37.6  % 38.6  % 38.0  % 38.8  %
Gross profit 62.4  % 61.4  % 62.0  % 61.2  %
Operating costs and expenses:
Selling, general and administrative 22.7  % 26.6  % 22.7  % 26.4  %
Product development and engineering 19.2  % 20.3  % 20.3  % 20.6  %
Intangible amortization 0.7  % 1.4  % 0.7  % 1.8  %
Total operating costs and expenses 42.6  % 48.4  % 43.8  % 48.7  %
Operating income 19.8  % 13.1  % 18.2  % 12.5  %
Interest expense (0.6) % (0.9) % (0.7) % (1.0) %
Non-operating income (expense), net 0.1  % (0.1) % 0.1  % 0.1  %
Investment impairments and credit loss reserves (0.3) % (1.0) % (0.2) % (1.9) %
Income before taxes and equity in net gains (losses) of equity method investments 19.0  % 11.0  % 17.4  % 9.7  %
Provision (benefit) for income taxes 1.6  % (0.3) % 1.7  % 0.3  %
Net income before equity in net gains (losses) of equity method investments 17.4  % 11.3  % 15.7  % 9.4  %
Equity in net gains (losses) of equity method investments 0.4  % (0.1) % 0.2  % (0.1) %
Net income 17.8  % 11.2  % 15.9  % 9.3  %
Net loss attributable to noncontrolling interest —  % —  % —  % —  %
Net income attributable to common stockholders 17.8  % 11.2  % 15.9  % 9.3  %
Percentages may not add precisely due to rounding.
Our regional mix of income (loss) from continuing operations before taxes and equity in net gains (losses) of equity method investments was as follows:
  Three Months Ended Six Months Ended
(in thousands) August 1, 2021 July 26, 2020 August 1, 2021 July 26, 2020
Domestic $ (6,623) $ (10,125) $ (12,108) $ (17,012)
Foreign 41,843  25,968  73,946  43,857 
Total $ 35,220  $ 15,843  $ 61,838  $ 26,845 
Domestic performance from continuing operations includes higher levels of share-based compensation compared to foreign operations.
Comparison of the Three Months Ended August 1, 2021 and July 26, 2020
The following table summarizes our net sales by major end market:
Three Months Ended
(in thousands, except percentages) August 1, 2021 July 26, 2020
Infrastructure $